By Mark Boundy
Four Myths and Five Truths About Value and Pricinghttps://c-suitenetwork.com/advisors/wp-content/themes/csadvisore/images/empty/thumbnail.jpg 150 150 Mark Boundy Mark Boundy https://secure.gravatar.com/avatar/fda1708afcd4681826f4fb12f56401d9?s=96&d=mm&r=g
Does your price communicate something about your value, or does your value inform your price? Is it either? Or, is it both? Spoiler alert: “both” is closest, but the truth is more interesting than that simple answer.
I’m building a reputation inside my company as “The Pricing Guy”. Actually, I’m the “The Value-driven Pricing Guy”, a difference many of my clients appreciate. Nobody is a hero in his hometown, I suppose. However, the glass is more than half full: it’s good identify a simple-to-close gap. Readers of my blogs and my upcoming book, however, need not wait for internal company perceptions to catch up with reality. I am passionate about helping companies grow more profitably now
Let’s separate some common myths about pricing from facts.
Myths Concerning Price:
Price is just another feature to trade away. This myth may threaten your company’s future more than any other. Fail to understand how customers actually think about price, and your people may end up donating your company’s profit dollars to your customers profit lines.
You should charge your full value premium. Ask Martin Shkreli (the “pharma bro”) if the still thinks it’s a good idea. In the long term, customers only pay a price premium willingly; give them a perception of overcharging, and your price premium is temporary. Use caution with pricing consultants (who often charge a “shared profits” fee) with no contractual incentive for retaining customers at a higher margin.
Customers prefer complex calculations when justifying your price. Has anyone every bought right into the assumptions built into any ROI calculator ever created by the selling company? Rather, is “the battle of the assumptions in the model” a sale unto itself? Humans use shortcuts whenever we can. Use a value/pricing justification that mirrors one of the common shortcuts, and you’re far better off — so are your customers.
Pricing is a useful incentive. Some companies build a sterling reputation for not discounting. Others teach customers to expect profit-killing end-of-quarter and end-of-year discounts. Inside one such company, I and my team developed a reputation for being the ones who produced high revenues and high profitability—with some work, we weaned our customers off of the discounting bottle, and my superiors off of the end-of-period discounting addiction. If you recognize this behavior in your own company, we need to talk: the profits you’re flushing away each quarter are probably far less than you’d pay me in a year…probably less than helping you through the first year of a full sales performance transformation.
Truths About Price:
Price is about differences. Your price level isn’t nearly as important to a customer as your price premium. Similarly, all of the bells and whistles on your product/service are clutter—surrounding your value differences.
Customers weigh the precise vs. the ambiguous, if you let them. Price and price premium are precisely measured in real-world numbers with dollar (or your own currency) signs attached – I’ve even seen prices with precision to the fourth decimal place. Conversely, your value premium exists only inside a customer’s mind, and unless you influence them into forming concrete (even monetized) thoughts around value, that value persists in a nebulous form.
Value is inherently based upon available options: Competitor, do it yourself, do nothing (status quo), do it later. Your proposal’s value must exceed the value of all of these other options.
Pricing communicates value… to customers, price is part of your messaging: Your price tells them what you think you’re worth. A lost deal feedback from my early Miller Heiman days that still stings (after we were told to skinny our proposal way down): “we didn’t think you understood the complexity of our problem, and didn’t think you could possibly do the amount of discovery we need for that price”. My clients often recognize this ugly truth: when you lower your price, you concurrently send all kinds of bad messages about what you believe you’re worth.
Pricing discipline isn’t just for setting prices of custom and semi-custom products and services. It’s useful for setting and defending standard prices against discounting. Finally, it can become the objective framework used for discussing pricing exceptions (in contrast with “the best whiner wins the discount dollars” systems I encounter occasionally).
Because pricing discipline is value discipline, it helps sellers discover full value by probing for all connected value; I use a tool called value network building, to analyze all of the places “where value could land” at the customer. This tool helps inform great conversations about value discovery long before pricing is discussed, and yields the right kind of “pricing courage” to conduct win-win price negotiations.
Want to know more? Ask questions below, or reach out to me privately. I am happy to add value to any issues you’re wrestling with.
To your success!
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