In our blog Five Steps to Successfully Implement Dynamic Pricing, we encouraged you to start by defining your company’s commercial objective.
But how do you determine your business goals? And how do those goals relate to your pricing strategy?
A good commercial objective needs work. In this post we’ll explore the process of defining this objective and give you practical advice on how to get started.
The commercial objective is an explanation for why your company exists and what customers can expect from your organization. In many ways, the objective is a compass that helps you make business decisions that align with your brand, goals, and consumer interests.
Creating a commercial objective might seem easy at first, but it’s actually difficult to pin down exactly:
But once you have the answer to these questions, you can make more strategic decisions that match your organization’s goals.
Home Depot has a great example of a commercial objective:
“The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices.”
This simple sentence clarifies several aspects of the company. They target consumers working on do-it-yourself projects around the home. It’s also clear what they want to achieve: quality service, numerous choices, and competitive prices.
A defined commercial objective is crucial for both your internal and external aspects of business. Internally, it helps to add measurable objectives for your departments. For example, Home Depot’s internal goals could include:
An important link with pricing already starts here: it’s hard to combine low prices with high service offering. Services cost money, so if a high quality of service is part of your objective, you need to factor these costs into your product prices.
Looking back at Home Depot, you can see this in action. Notice that the company specifically keeps its language about prices vague with the words “most competitive.” This is because they need to factor in their high-level services, consumer perception, and more into their prices. If they promised to have the lowest prices, they could never provide the same level of service to their consumers.
Since your commercial objective manifests in your prices, it also is crucial for the external aspects of your business. Price points act as signposts for consumers, and customers know what to expect from a service at every price point. If consumers see high prices for your products, they’ll assume that it includes a certain amount of service. High prices with low service offerings will brew customer resentment and be detrimental to your business. Your competition will either out-price you or offer a better value-for-money option for consumers.
There are two major steps in the process of determining your commercial objective: market research followed by business introspection. Both reach to the foundations of your business and serve as the base for your commercial decisions.
How do you want consumers to perceive your company? What is your ideal position and image? Before you can answer these questions, you need to analyze your market and see where you stand among your competition.
There are numerous ways to do a market analysis, but for our purposes it’s important to drill down what you want to know about your competition. Consider the metrics you’ll use for bench-marking, and which companies you’ll analyze. At a minimum, evaluate your competition’s:
Use this information to evaluate different stores in your industry, then categorize them broadly. The graphic below is an example of how you can organize the data in a benchmarking map. This graphic looks at the number of products vs. price and service across a market:
A matrix like this clarifies who your direct competition is and where there are gaps in the market.
After examining the market, it’s time to turn inward and focus on where your company stands in relation to the rest.
Ask yourself what kind of company you want to be, and how you want to achieve those goals. Do you want to be a discounter with loads of products? Or a specialist in one product category (such as bags and suitcases)? Or somewhere in between the two? As a specialist you could have a higher price and a better value offering through services (such as fast delivery and product knowledge), but you will also make fewer sales. As a generalist you’ll make more sales, but you can only raise your prices to a certain point.
Other good questions include:
The answers will help you decide where you want to be in the market. Remember to write your goals according to SMART principles: Specific, Measurable, Achievable, Relevant and Time-bound. These principles help ensure your goals are actionable.
What is a Mission Statement?
A business mission statement describes the purpose for existing. For example, a company may exist to solve problems related to education, healthcare, or society. Defining and promoting such helps educate investors, employees, customers, and the general public.
Let’s examine Amazon to survey a mission statement example:
“To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices.”
What is a Vision Statement?
A business vision statement articulates aspirations and intended impact upon consumers, society, the globe, etc. It entails what a company is, yet is more interested in establishing what it aspires to become.
IKEA’s is often among vision statement examples:
“Our vision is to create a better everyday life for many people.”
Let’s first define a goal in a business context to distinguish a goal vs objective. A goal is a set outcome a business seeks to achieve. This could be more general, as to have a profitable year. Objectives seek to be more specific. For example, factoring a dollar amount and amount of time to define “profitable.”
So, what is an objective? Business objectives are specific steps taken toward achieving company goals combined with a clear method of measurement. An objective is described in more quantifiable terms.
Organisational strategic goals are more qualitative, such as aspiring to increase the quality of customer service. But, objectives can be measured, such as to reduce response times of customer inquiry to four hours by the end of the first quarter.
Goal statement examples:
Strategic objective examples:
After you’ve done the work of determining how you want the public to view your brand and what level of service you plan to offer, you can build a strategy that reflects your goals. We’ll cover this more in another post, but this is a good time to think about how your business goals translate into monetary needs.
Since your commercial objective should drive your pricing strategy, not the other way around, this process is an important foundational step towards automated pricing. As the overarching goal of your company, it should answer the question of how you want consumers to perceive your company and what they can expect from you. It’s an important step towards achieving your maximum profitability, and it’s the basis for everything to come.
Have you defined your commercial objective and are interested in automated pricing management? Click the button below to request a free demo of Omnia today.