As mentioned in the blog dated 04/29/2025 entitled, “To Understand Risk is to Understand People”, we highlighted 16 activities which could hinder a company’s ability to achieve their strategic goals and objectives. Today, we will discuss the second (2nd):
Pricing, Fees, & Value
My perspective is “pricing (inclusive of fees, offers, discounts)”, which a company charges for its products and services will be one of the single most important decisions the business will make. I state this because it will have a downward impact to so many risk categories impacting the company – strategic, financial, compliance, legal, and operational which ultimately will determine if a company succeeds, fails, incurs regulatory scrutiny, and/or results in negative perception due to:
- Customer: unrealized value from the purchased products and services
- Employee / Third Party: inability to understand pricing structure and/or timely and accurately implement the pricing structure effectively!
Let’s start off with a few examples:
- Personally, having recently started my own business, a focus area has been on pricing since this ultimately impacts my competitive advantage and net income/profit earned. Prior to establishing my pricing structure, with the assistance of Artificial Intelligence (AI) of course 😊, a few questions contemplated:
- How will the pricing be competitive and stand out against my competitors?
- Will the pricing be consistent or variable across my client base? If variable:
- What will be the variable criteria factors to consider and implement?
- How will the variable criteria factors be established to guide implementation and consistency?
- What is the impact on operational and monitoring activities (aka: what additional risks does the decision introduce) to my customer, employee, and company activities?
- Does this decision outweigh the additional activities required due to having a variable rate?
- What is the fixed and variable cost of my business?
- What is the net income / profit margin goal strategy?
Based on my prior experience, while the company maintained a standard, annual pricing structure by geographic region, the employee focus was on the overall margin. Therefore, the pricing utilized differed significantly between customers due to a variety of project-related factors including but not limited to the following: timing, location, type, internal resources, subcontractor utilization, subcontractor earned margin, etc. and variations amongst these factors. While the company’s financial perspective rationale is understood and the need to be able to have variables, this caused additional complexities and risks, including but not limited to:
- Technology / Financial – an administrative burden and increased cost to monitor by resource margin continuously and update to allow for timely and accurate revenue recognition
- Compliance / Legal – unfair or deceptive when pricing varied although the established criteria remained the same across customers and geographic region
- Operational / Compliance – self-dealing in instances where the employee, for personal incentive compensation gain, may take liberty in applying the variable rates to achieve the annual margin goal
- As in the blog dated, 05/06/2025 entitled, “Marketing, Advertising, & Sales Activities Impacting Risk to your Company”, we discussed how consistency across your platforms is critical. While shopping this morning to pick up a specific item, my personal customer observation made while examining the price across platforms:
- Third party app price differed than in-store and store app price
- Third party app did not provide for in-store or store app savings offer
- Store app indicated 35% savings with setting up of auto-ship and an additional 5% savings on the 1st auto-ship order whereas in-store sign indicated 40% savings with auto-ship but did not distinguish as store app did in how the customer would receive the 40% savings
While due to pricing strategy, contractual and legal language, the company risk is mitigated, customer confusion could be realized and employees may not have the knowledge or resource tools available to address these customer concerns.
Given the examples noted above and the evolving platforms on which a company’s price is listed, questions to contemplate as your company determines and implements its pricing strategy include but are not limited to:
- Who is involved in determining the price decisions? Are these individuals appropriate and do they span across all impacted stakeholders (e.g., financial, legal, compliance, operational (across the business), technology, third parties, etc.)?
- Does documentation exist to support price strategy decisions, especially in cases where a variable approach was taken?
- How is communication around the approved pricing performed? Is the communication clear and easily understood by employees, third parties, customers without reading fine print?
- How are employees / third parties educated to be knowledgeable around the pricing to apply consistently and/or respond to customer inquiries? Do they have available resource tools to respond to customer inquiries?
- What monitoring and oversight activities are performed to determine if the value derived aligns to customer expectations as well as alignment with the approved strategy?
- How are changes to pricing identified, evaluated, approved, and implemented based on marketing campaigns/offers, competitors, new products and services, etc. and how are stakeholders coordinating across the company?
In summary, my intention with providing specific examples and thought-provoking questions is to demonstrate how pricing strategy is not only a financial decision for a company, but one which comes with a variety of risk factors (strategic, compliance, and operational) when assessing from varying perspectives (company, customer, and employee). To me, a company can realize a competitive advantage by simplifying their pricing structure to:
- Create clarity through transparency
- Knowledge and understanding by your employees, third parties, and customers
- Implementation consistency across platforms.
Here are valuable regulatory press releases about fees and pricing:
- https://www.ftc.gov/news-events/news/press-releases/2025/05/ftc-rule-unfair-or-deceptive-fees-take-effect-may-12-2025
- https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/dissenting-statement-commissioner-andrew-n-ferguson-joined-commissioner-melissa-holyoak-regarding-0
- https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/statement-regarding-request-public-comment-re-surveillance-pricing-practices
As always, EROS would love to strategize and elaborate on risks as customized to your company’s specific strategy and activities. Please contact us today!
Cindy Hart, EROS Founder and CEO