Originally published on Forbes.com
Prices get stale. And for good reason: markets are changing. Your competitors are coming out with new products and services. What’s important to people is changing. The motives behind your customers’ buying decisions are always evolving.
Companies try to cover up these dynamics in a few ways:
- Increase or decrease prices artificially
- Change or tinker with configuration or quote systems
- Replace leaders, processes or strategies
But they’re not fixing the root problem: the logic of the original list prices. For most companies, the prices are missing fresh data from the buyer’s decision process. They’re using outdated rationale, and they’re missing opportunities to keep pricing, and their offerings’ value drivers, fresh. Your value drivers are dynamic, and they must be monitored ongoingly to keep up with those changing needs.
Avoiding Stale Pricing
1. Understand long-term value drivers. Value drivers are something you need to track over time. How do your customers choose between you and your competitors year over year? How does their behavior change as time passes? What will they base their decisions on in the future? Think of things like 24/7 support or sustainability throughout the supply chain, look for what customers will care about, and start preparing for those things now.
2. Ongoing use of value. The more an organization understands the foundations of value (think: the financial impact of their offerings), the more they can improve overall differentiation over time. How do your services increase value, decrease costs or mitigate risks for your customers? By how much? When teams like customer support, sales, product development and tech support can identify and share that information, they can improve the offering and surrounding services more effectively.
3. Build processes and feedback systems that align with your toolsets. Companies often lean on optimization or price management tools for a lot of their pricing strategy. These tools are great at looking at historical price performance and setting future prices, but there is a large gap.
Where and how are these things taken into consideration for price setting?
- Dynamic value drivers
- Competitive offering and pricing
- End-user buying decision criteria
Typically, they aren’t. Tools need to see a change in transactions (i.e., loss of business from previous price performance) to adjust future pricing. Most companies cannot afford to lose market share before acting. They need processes and systems that consistently gather this information in order to update models and sales motions.
Becoming Value-Based
QBRs are a place where teams can gather fresh data on what their customers value most.
- Do you ask for feedback? Are you asking enough open-ended questions to uncover the latest value drivers of your offerings? What features are customers using and not using? Which features are making customers the most money?
- Do you ask the right questions to the right people to understand what is valuable to them now and in the future?
- How do you use that information in other parts of the business? Does the product management team incorporate feedback into their product roadmapping? Do other salespeople learn from the new information to better message and position their offers? Does pricing use this new information to update their differential value calculation and capture rates?
Put a process in place versus having this information collect dust in the QBR deck. Use the information as input for keeping customer value at the center of pricing, marketing, product development and customer service improvements and plans.
In today’s world, customers seem to be making buying decisions faster and faster. The future industry-leading companies will be those that are truly value-based and most closely aligned with customers’ changing needs.
I believe these companies will be most successful in building and maintaining their pricing power in the long term.
