Welcome!

Linux Containers Authors: XebiaLabs Blog, Elizabeth White, Dana Gardner, Yeshim Deniz, Carmen Gonzalez

Related Topics: Agile Computing, Java IoT, Microservices Expo, Linux Containers, Open Source Cloud

Agile Computing: Article

Seven Warning Signs Your Company Won’t Survive

Your company needs to have a pricing process that is continuous

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 a few salespeople’s biased anecdotes, perhaps a competitor’s outdated price list, and the CFO’s careful calculation of where the price needs to be to meet the financial projections.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.

More Stories By Per Sjofors

Per Sjofors is Founder/CEO, Atenga, Inc. He has more than 20 years of executive management experience and has built a number of successful, and very profitable, sales and marketing companies in Europe and in the US. He also co-founded industry association G-SAM and has published a number of articles in industry press. He is also a sought-after speaker at conferences.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


@ThingsExpo Stories
SYS-CON Events announced today that CA Technologies has been named "Platinum Sponsor" of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, New York, and 21st International Cloud Expo, which will take place in November in Silicon Valley, California.
SYS-CON Events announced today that delaPlex will exhibit at SYS-CON's @CloudExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. delaPlex pioneered Software Development as a Service (SDaaS), which provides scalable resources to build, test, and deploy software. It’s a fast and more reliable way to develop a new product or expand your in-house team.
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo 2016 in New York. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place June 6-8, 2017, at the Javits Center in New York City, New York, is co-located with 20th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry p...
The explosion of new web/cloud/IoT-based applications and the data they generate are transforming our world right before our eyes. In this rush to adopt these new technologies, organizations are often ignoring fundamental questions concerning who owns the data and failing to ask for permission to conduct invasive surveillance of their customers. Organizations that are not transparent about how their systems gather data telemetry without offering shared data ownership risk product rejection, regu...
WebRTC sits at the intersection between VoIP and the Web. As such, it poses some interesting challenges for those developing services on top of it, but also for those who need to test and monitor these services. In his session at WebRTC Summit, Tsahi Levent-Levi, co-founder of testRTC, reviewed the various challenges posed by WebRTC when it comes to testing and monitoring and on ways to overcome them.
Every successful software product evolves from an idea to an enterprise system. Notably, the same way is passed by the product owner's company. In his session at 20th Cloud Expo, Oleg Lola, CEO of MobiDev, will provide a generalized overview of the evolution of a software product, the product owner, the needs that arise at various stages of this process, and the value brought by a software development partner to the product owner as a response to these needs.
The Internet of Things can drive efficiency for airlines and airports. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Sudip Majumder, senior director of development at Oracle, discussed the technical details of the connected airline baggage and related social media solutions. These IoT applications will enhance travelers' journey experience and drive efficiency for the airlines and the airports.
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).
In his session at @ThingsExpo, Sudarshan Krishnamurthi, a Senior Manager, Business Strategy, at Cisco Systems, will discuss how IT and operational technology (OT) work together, as opposed to being in separate siloes as once was traditional. Attendees will learn how to fully leverage the power of IoT in their organization by bringing the two sides together and bridging the communication gap. He will also look at what good leadership must entail in order to accomplish this, and how IT managers ca...
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).
SYS-CON Events announced today that CA Technologies has been named “Platinum Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CA Technologies helps customers succeed in a future where every business – from apparel to energy – is being rewritten by software. From ...
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 @...
SYS-CON Events announced today that Outlyer, a monitoring service for DevOps and operations teams, has been named “Bronze Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Outlyer is a monitoring service for DevOps and Operations teams running Cloud, SaaS, Microservices and IoT deployments. Designed for today's dynamic environments that need beyond cloud-scale monitoring, we make monitoring effortless so you...
In his session at @ThingsExpo, Steve Wilkes, CTO and founder of Striim, will delve into four enterprise-scale, business-critical case studies where streaming analytics serves as the key to enabling real-time data integration and right-time insights in hybrid cloud, IoT, and fog computing environments. As part of this discussion, he will also present a demo based on its partnership with Fujitsu, highlighting their technologies in a healthcare IoT use-case. The demo showcases the tracking of pati...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settle...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, whic...
With 10 simultaneous tracks, keynotes, general sessions and targeted breakout classes, Cloud Expo and @ThingsExpo are two of the most important technology events of the year. Since its launch over eight years ago, Cloud Expo and @ThingsExpo have presented a rock star faculty as well as showcased hundreds of sponsors and exhibitors! In this blog post, I provide 7 tips on how, as part of our world-class faculty, you can deliver one of the most popular sessions at our events. But before reading the...
SYS-CON Events announced today that Cloud Academy will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Cloud Academy is the industry’s most innovative, vendor-neutral cloud technology training platform. Cloud Academy provides continuous learning solutions for individuals and enterprise teams for Amazon Web Services, Microsoft Azure, Google Cloud Platform, and the most popular cloud computing technologies. Ge...
The best way to leverage your Cloud Expo presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering Cloud Expo and @ThingsExpo will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at Cloud Expo. Product announcements during our show provide your company with the most reach through our targeted audiences.
TechTarget storage websites are the best online information resource for news, tips and expert advice for the storage, backup and disaster recovery markets. By creating abundant, high-quality editorial content across more than 140 highly targeted technology-specific websites, TechTarget attracts and nurtures communities of technology buyers researching their companies' information technology needs. By understanding these buyers' content consumption behaviors, TechTarget creates the purchase inte...