|By Per Sjofors||
|November 24, 2009 10:00 AM EST||
CEOs in Technology on Ulitzer
In these difficult times are you doing enough for your business? Will you bring excuses to the next board meeting or can you justify and demonstrate that you have taken control of your business' performance. Companies with flawed pricing strategies are easy to spot: they are never the market leader, they always struggle, they are always the runner up, and they have revolving doors at the executive suite. Fortunately, you have a choice and this article will guide you towards a better fate and a higher chance of surviving the current economy.
Atenga is a strategic price consultancy. We develop and implement pricing strategies that increase revenues and maximize profits. During our engagements, we have seen numerous examples of companies with failed pricing strategies, leading to suboptimal business results or even business failure.
The following is a list of the most common warning signs that indicate your company has a failed pricing strategy, leading to inferior business performance, and sometimes, complete business failure. If you see any of these signs in your company, you need to take corrective action now:
Warning sign #1:
Your company does not have documented pricing processes
In many companies, the “pricing process” consists of hastily called “price meetings”—a last minute meeting to set the final price for a new product. The attendees are often unprepared, and research is limited to (at best!) a few salespeople’s biased anecdotes, perhaps a competitor’s outdated price list, and the CFO’s careful calculation of where the price needs to be to meet the financial projections. The resulting price, sometimes after hours of discussions, will be just a guess. It may be an educated guess, but it’s still a guess. These ad hock price meetings have nothing to do with a sound pricing process and do not allow companies to develop and enforce a holistic pricing strategy designed to optimize revenues, profits and corporate growth. Instead, pricing guesswork will inevitably leave money on the table or reduce the sales volume - or both!
Your company needs to have a pricing process that is continuous, that has goals, budget and authority. It needs a pricing leader, either an executive (Chief Pricing Officer) or a non-executive “pricing czar”. Companies who have a pricing leader, on average, have twice the profitability, twice the growth rate, and 4-5 times the valuation compared to companies who don’t. How can you afford not to initiate a sound pricing process?
Warning sign #2:
The only hard data your company uses for pricing is your cost
Prices are optimized and lead to superior business results when they are based on the value perceptions of the customer, thus, prices based on your costs will always be wrong. Companies may say they add “the typical margin of our industry”, or, “I know what markup the market will bear”, or, “an X% markup makes sense for my customers”, but in fact, statements like these just mean you don’t know your customers’ value perceptions.
If you don’t know your customers’ value perceptions, you also don’t know for sure what marketing messages, marketing mix, sales strategy and tactics are the most efficient. In addition, you don’t know which bundles and polices will drive your prospects to your company and to buy your product or service. You and your company are just winging it. Think about this for a while…. What hard data resource does your company use to drive your pricing strategy?
Warning sign #3:
Your company doesn’t know your customers’ true willingness to pay
Of course your company is engaged in ongoing conversations with your customers, and maybe to a lesser degree with your larger “marketplace” consisting of prospects, suspects and companies or individuals for whom you might have nothing to sell. And of course your sales people and your marketing people are trying to find out what your customers are willing to pay for your product or service and what drives the customer to make a decision. And of course, you have some data on this. But there is a serious flaw; the data your sales and marking people collect is all wrong! How can that be?
Here is the reason: Whenever your company has a conversation with your customers or your marketplace, it inevitably becomes a sales conversation, sometimes for immediate sales, or sometimes for future sales. In every sales conversation, your customer will try to discount the value of your product or service. They naturally want a better deal so they will tell lies, or not tell the whole truth, or both, all for the purpose of getting you to offer a better price, a deeper discount, more for-free features etc.
Go back in your memory and recall a time when you where interrogated by a company. Maybe the last time you bought a new car, or negotiated with your contractor for a kitchen renovation. Were you completely truthful? Did you leave out some information you thought could get you in a worse negotiating position, letting the seller take the upper hand? I don’t think so! So why would you believe the data collected from your company’s representatives? It is not hard data! It is a biased collection of anecdotes, rumors and lies.
Warning sign #4:
Your company’s sales people are not trained to defend prices
Many companies send out their sales force unprepared and without an optimized pricing strategy to back them up. Years of interaction with customers pushing for lower prices, and trying to discount the value your company delivers, gives the sales force a tainted and diminished view of the marketplace’s value perceptions. “Selling” value then becomes almost impossible. If your company only trains your sales force on the product or service your company offers, and doesn’t include training on the true value perceptions of the marketplace, as well as specific sales tactics to defend your prices and your pricing strategy, it will lead to unnecessary discounting, elongated sales cycles, competitive disadvantage, loss of revenues and profits, and ultimately, the commoditization of your offerings. Why would you ever want that?
Warning sign #5:
Your company’s sales people are allowed too much leeway in discounting
Allowing your sales people to drive you to discounting typically initiates a death-spiral; salespeople discount heavily and they take “the deal” at any cost; they convince management over and over again to accept deep discounting, and thus, effectively runs the company’s pricing “strategy”.
Ongoing discounting diminishes the marketplace’s value perception about the company and the product or service. So in order to maintain revenues, companies will be forced to lower prices or discount even further in the hope that the sales volume will increase to offset the lower prices - but it will not. Instead companies will find themselves with, at best, flat growth, no profits, or with ever declining revenues and ultimate business failure.
Think about this for a while. How often are discount requests elevated to management? What would happen if you stopped your sales people from discounting completely? How much would your profits increase? What changes would it make in the sales volume? Any at all? What “tools” would they need and use to close the deal without discounting? Do you really know or are you just guessing?
Warning sign #6:
Your company has not segmented your customers based on their decision behavior
The “Iron Law of Pricing” says that different behavioral customer segments will value your offering differently, and that the pricing strategy must be constructed to leverage these differences to increase the company’s market penetration, price realization and profitability. Thus, one-size-fits-all doesn't cut it. Companies must know the behavioral segmentation of their marketplace, as well as the value perceptions and monetary value each segment assigns to their product. Companies must also be aware of the buying decision drivers for each segment. Armed with sufficient knowledge of these traits, companies must then leverage this knowledge to tailor the product, packaging, delivery options, marketing messages and the pricing strategy to maximize revenues and profits from the overall marketplace.
How does your company segment your market? Just using SIC code, ZIP codes, or some other variable that may have nothing do with companies' decision behavior and willingness to pay?
Warning sign #7:
Your company benchmarks your prices on “the marketplace”
By resorting to “marketplace pricing,” companies accept the commoditization of their product or service - and as commodities are sold on price alone - the company will only win business when it sells at the lowest price.
Especially in an attempt to gain market share, it is even common for a new entrance in a market to price 15%, 25% or even 50% below the market leader. The low price leads to low value perceptions, so this becomes a proven way to always be the runner up, never be able to raise prices, always struggle with profitability, and always be playing catch up to the market leader(s). Why would anybody want that as a pricing strategy - it is just a failed business strategy!
Instead, management teams must make the effort and investment to learn the value perceptions and decision drivers of their customer. They can then use this knowledge to differentiate their products or services to create additional value, and then price the product to monetize that additional value.
The choice is yours. Look around your market and your competition. I’ll bet you that the market leaders in your industry are not the “low price leader,” but instead are companies with higher prices on their products or services with a sound understanding of the customers’ needs and wants, willingness to pay, and decision drivers. What about you? Are you the market leader? If not, why?
Conclusion: These 7 warning signs need to be taken seriously. Even if you just recognize a single one, it is an indication that your company does not have an optimal pricing strategy. Since most companies have never done it, a profit optimized pricing strategy has emerged as an important source of competitive advantage and increased profitability. CEO’s running companies with an optimized pricing strategy are the most admired in their industry.
Thus, the development of a holistic pricing strategy is just as important as the management of costs and the growth of sales volume. If you recognized any of these mistakes, you need to take action; read books on pricing, do some Google searches, and understand what can be done and who will do it. Call us if you want to discuss.
Fifty billion connected devices and still no winning protocols standards. HTTP, WebSockets, MQTT, and CoAP seem to be leading in the IoT protocol race at the moment but many more protocols are getting introduced on a regular basis. Each protocol has its pros and cons depending on the nature of the communications. Does there really need to be only one protocol to rule them all? Of course not. In his session at @ThingsExpo, Chris Matthieu, co-founder and CTO of Octoblu, walk you through how Oct...
Oct. 24, 2016 08:15 AM EDT Reads: 3,139
SYS-CON Events announced today that Embotics, the cloud automation company, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Embotics is the cloud automation company for IT organizations and service providers that need to improve provisioning or enable self-service capabilities. With a relentless focus on delivering a premier user experience and unmatched customer support, Embotics is the fas...
Oct. 24, 2016 08:00 AM EDT Reads: 830
The Internet of Things (IoT), in all its myriad manifestations, has great potential. Much of that potential comes from the evolving data management and analytic (DMA) technologies and processes that allow us to gain insight from all of the IoT data that can be generated and gathered. This potential may never be met as those data sets are tied to specific industry verticals and single markets, with no clear way to use IoT data and sensor analytics to fulfill the hype being given the IoT today.
Oct. 24, 2016 07:30 AM EDT Reads: 2,543
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
Oct. 24, 2016 07:15 AM EDT Reads: 915
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the...
Oct. 24, 2016 05:45 AM EDT Reads: 11,374
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
Oct. 24, 2016 05:00 AM EDT Reads: 5,534
The Quantified Economy represents the total global addressable market (TAM) for IoT that, according to a recent IDC report, will grow to an unprecedented $1.3 trillion by 2019. With this the third wave of the Internet-global proliferation of connected devices, appliances and sensors is poised to take off in 2016. In his session at @ThingsExpo, David McLauchlan, CEO and co-founder of Buddy Platform, discussed how the ability to access and analyze the massive volume of streaming data from millio...
Oct. 24, 2016 05:00 AM EDT Reads: 3,095
SYS-CON Events announced today that Pulzze Systems will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Pulzze Systems, Inc. provides infrastructure products for the Internet of Things to enable any connected device and system to carry out matched operations without programming. For more information, visit http://www.pulzzesystems.com.
Oct. 24, 2016 05:00 AM EDT Reads: 2,499
Successful digital transformation requires new organizational competencies and capabilities. Research tells us that the biggest impediment to successful transformation is human; consequently, the biggest enabler is a properly skilled and empowered workforce. In the digital age, new individual and collective competencies are required. In his session at 19th Cloud Expo, Bob Newhouse, CEO and founder of Agilitiv, will draw together recent research and lessons learned from emerging and established ...
Oct. 24, 2016 04:30 AM EDT Reads: 1,318
Enterprise IT has been in the era of Hybrid Cloud for some time now. But it seems most conversations about Hybrid are focused on integrating AWS, Microsoft Azure, or Google ECM into existing on-premises systems. Where is all the Private Cloud? What do technology providers need to do to make their offerings more compelling? How should enterprise IT executives and buyers define their focus, needs, and roadmap, and communicate that clearly to the providers?
Oct. 24, 2016 04:30 AM EDT Reads: 2,504
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
Oct. 24, 2016 04:00 AM EDT Reads: 1,721
SYS-CON Events announced today that Streamlyzer will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Streamlyzer is a powerful analytics for video streaming service that enables video streaming providers to monitor and analyze QoE (Quality-of-Experience) from end-user devices in real time.
Oct. 24, 2016 03:45 AM EDT Reads: 967
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
Oct. 24, 2016 03:45 AM EDT Reads: 895
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
Oct. 24, 2016 03:30 AM EDT Reads: 9,675
Cloud based infrastructure deployment is becoming more and more appealing to customers, from Fortune 500 companies to SMEs due to its pay-as-you-go model. Enterprise storage vendors are able to reach out to these customers by integrating in cloud based deployments; this needs adaptability and interoperability of the products confirming to cloud standards such as OpenStack, CloudStack, or Azure. As compared to off the shelf commodity storage, enterprise storages by its reliability, high-availabil...
Oct. 24, 2016 02:45 AM EDT Reads: 1,105
The IoT industry is now at a crossroads, between the fast-paced innovation of technologies and the pending mass adoption by global enterprises. The complexity of combining rapidly evolving technologies and the need to establish practices for market acceleration pose a strong challenge to global enterprises as well as IoT vendors. In his session at @ThingsExpo, Clark Smith, senior product manager for Numerex, will discuss how Numerex, as an experienced, established IoT provider, has embraced a ...
Oct. 24, 2016 02:30 AM EDT Reads: 1,071
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
Oct. 24, 2016 01:15 AM EDT Reads: 1,917
SYS-CON Events announced today that Super Micro Computer, Inc., a global leader in Embedded and IoT solutions, will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 7-9, 2017, at the Javits Center in New York City, NY. Supermicro (NASDAQ: SMCI), the leading innovator in high-performance, high-efficiency server technology, is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and ...
Oct. 24, 2016 01:00 AM EDT Reads: 3,580
SYS-CON Events announced today that SoftNet Solutions will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. SoftNet Solutions specializes in Enterprise Solutions for Hadoop and Big Data. It offers customers the most open, robust, and value-conscious portfolio of solutions, services, and tools for the shortest route to success with Big Data. The unique differentiator is the ability to architect and ...
Oct. 24, 2016 01:00 AM EDT Reads: 820
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
Oct. 24, 2016 12:45 AM EDT Reads: 984