Assessing

“How do I know what the right strategy is for my business?”

For pricing to be “strategic” it must first be focused on achieving an objective. The problem is that many firms often have multiple and conflicting objectives. Often CEOs will stand in front of their sales force and say they want to grow revenue, profits, and market share. In a highly competitive mature business, you can’t do all three with price alone. The first action is to make the objective reasonable, given customer and market conditions. Focus pricing on one thing: price for profits, innovate for growth. The basis for pricing to be “strategic” requires a good understanding of how the products and associated services differ from competitors, what that difference is worth to customers, how competitors are likely to react, the products and services costs and the ability to return profits to a company. The second action is to recognize that knowing your costs for price setting can be very difficult and dig in. Because costs are often structured in a way that hide their real nature, they prevent managers from making decisions to reduce price to fill capacity when that might be a strategic move. That is, even though it may appear that the prices are lower than the “apparent” costs, they still provide incremental contributions to profit. Most costing systems hide that. We believe the biggest action for strategic pricing is in realizing the game that customers play to prevent you from charging prices which reflect your value given competitors. Take action by developing tactics which minimize that damage. To do that, you must really understand your value and employ the use of Give-Gets and tough negotiating to capture that value.

“We need some quick wins for short term growth. Where should I start?”

The more you understand your customers, the more you’ll understand the distinct value you bring to them. If you truly understand your customer’s business model, you can evaluate how their sales will be impacted (or not, more likely) by your pricing. If you provide a discount, will they sell more? Talk to your customers, or have a third party talk to them. Validate why they buy your products, and uncover new reasons why they like you. The key is to learn what incremental financial benefit your product gives to customers relative to your competitors. Value drives profit to their bottom lines, and you can share in that mutual benefit through pricing. Customer needs vary across segments, so creating tiers for your offering will help provide more choices for them beyond a simple yes/no. Versioning your products steers Value Buyers and Poker Players towards your flagship product, while Price Buyers will settle for a flanking offering that maintains price-value alignment. By removing the most valuable features from the flagship version, these Give-Gets™ create powerful negotiating tools that help you get your price after you set your price.

“My sellers start out strong but then we have to bring in senior executives to close the (discounted) deal. How do we stop the madness?”

One of a seller’s worst habits is rampant discounting. This habit is insidious, hard to break, and downright destructive. When we couple a habit (discounting) with a reward (money, or a commission for closing a deal), our brain can’t help but think this is a great thing to do to close a deal. Most sellers lack the confidence to close deals without discounting because they either do not understand, or do not believe in the value of the product/service they are selling. The lack of confidence salespeople demonstrate can be symptomatic of a lack of attention to value and in doing so, they diminish their ability to communicate and have confidence in the value they bring to the table. How can we stop the madness? Make sure your salespeople can understand and articulate the value you provide to your customers. Use insights into the buyer’s industry, their customer base, the competition they manage, and the challenges they face as a starting point. Stop modeling poor behavior by undermining your sales team’s efforts at the last moment by granting discounts to make the number at quarter or year-end. Plan your negotiations, know the buyer, understand the selling scenario and develop a winning strategy. Finally, empower the walkaway. If Poker Players are jerking your salespeople around, let them go – most of them weren’t going to be very profitable anyway. If your sellers lack the ability to close the deal without a discount, make sure you aren’t rewarding bad habits. Then, make sure your sales teams have the Backbone to articulate value, and defend their price to close the deal.