|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 a few salespeople’s biased anecdotes, perhaps a competitor’s outdated price list, and the CFO’s careful calculation of where the price needs to be to meet the financial projections.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.
"My role is working with customers, helping them go through this digital transformation. I spend a lot of time talking to banks, big industries, manufacturers working through how they are integrating and transforming their IT platforms and moving them forward," explained William Morrish, General Manager Product Sales at Interoute, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Jul. 28, 2016 05:30 PM EDT Reads: 2,208
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
Jul. 28, 2016 04:30 PM EDT Reads: 1,179
Extracting business value from Internet of Things (IoT) data doesn’t happen overnight. There are several requirements that must be satisfied, including IoT device enablement, data analysis, real-time detection of complex events and automated orchestration of actions. Unfortunately, too many companies fall short in achieving their business goals by implementing incomplete solutions or not focusing on tangible use cases. In his general session at @ThingsExpo, Dave McCarthy, Director of Products...
Jul. 28, 2016 04:15 PM EDT Reads: 1,772
WebRTC is bringing significant change to the communications landscape that will bridge the worlds of web and telephony, making the Internet the new standard for communications. Cloud9 took the road less traveled and used WebRTC to create a downloadable enterprise-grade communications platform that is changing the communication dynamic in the financial sector. In his session at @ThingsExpo, Leo Papadopoulos, CTO of Cloud9, discussed the importance of WebRTC and how it enables companies to focus...
Jul. 28, 2016 03:45 PM EDT Reads: 1,018
Verizon Communications Inc. (NYSE, Nasdaq: VZ) and Yahoo! Inc. (Nasdaq: YHOO) have entered into a definitive agreement under which Verizon will acquire Yahoo's operating business for approximately $4.83 billion in cash, subject to customary closing adjustments. Yahoo informs, connects and entertains a global audience of more than 1 billion monthly active users** -- including 600 million monthly active mobile users*** through its search, communications and digital content products. Yahoo also co...
Jul. 28, 2016 03:15 PM EDT Reads: 692
A critical component of any IoT project is what to do with all the data being generated. This data needs to be captured, processed, structured, and stored in a way to facilitate different kinds of queries. Traditional data warehouse and analytical systems are mature technologies that can be used to handle certain kinds of queries, but they are not always well suited to many problems, particularly when there is a need for real-time insights.
Jul. 28, 2016 03:15 PM EDT Reads: 1,904
Amazon has gradually rolled out parts of its IoT offerings in the last year, but these are just the tip of the iceberg. In addition to optimizing their back-end AWS offerings, Amazon is laying the ground work to be a major force in IoT – especially in the connected home and office. Amazon is extending its reach by building on its dominant Cloud IoT platform, its Dash Button strategy, recently announced Replenishment Services, the Echo/Alexa voice recognition control platform, the 6-7 strategic...
Jul. 28, 2016 12:30 PM EDT Reads: 605
The best-practices for building IoT applications with Go Code that attendees can use to build their own IoT applications. In his session at @ThingsExpo, Indraneel Mitra, Senior Solutions Architect & Technology Evangelist at Cognizant, provided valuable information and resources for both novice and experienced developers on how to get started with IoT and Golang in a day. He also provided information on how to use Intel Arduino Kit, Go Robotics API and AWS IoT stack to build an application tha...
Jul. 28, 2016 12:00 PM EDT Reads: 1,239
IoT generates lots of temporal data. But how do you unlock its value? You need to discover patterns that are repeatable in vast quantities of data, understand their meaning, and implement scalable monitoring across multiple data streams in order to monetize the discoveries and insights. Motif discovery and deep learning platforms are emerging to visualize sensor data, to search for patterns and to build application that can monitor real time streams efficiently. In his session at @ThingsExpo, ...
Jul. 28, 2016 11:15 AM EDT Reads: 1,149
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, 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. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
Jul. 28, 2016 10:45 AM EDT Reads: 1,289
SYS-CON Events announced today that 910Telecom 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. Housed in the classic Denver Gas & Electric Building, 910 15th St., 910Telecom is a carrier-neutral telecom hotel located in the heart of Denver. Adjacent to CenturyLink, AT&T, and Denver Main, 910Telecom offers connectivity to all major carriers, Internet service providers, Internet backbones and ...
Jul. 28, 2016 10:30 AM EDT Reads: 833
Big Data, cloud, analytics, contextual information, wearable tech, sensors, mobility, and WebRTC: together, these advances have created a perfect storm of technologies that are disrupting and transforming classic communications models and ecosystems. In his session at @ThingsExpo, Erik Perotti, Senior Manager of New Ventures on Plantronics’ Innovation team, provided an overview of this technological shift, including associated business and consumer communications impacts, and opportunities it ...
Jul. 28, 2016 10:00 AM EDT Reads: 285
SYS-CON Events announced today that Venafi, the Immune System for the Internet™ and the leading provider of Next Generation Trust Protection, will exhibit at @DevOpsSummit at 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Venafi is the Immune System for the Internet™ that protects the foundation of all cybersecurity – cryptographic keys and digital certificates – so they can’t be misused by bad guys in attacks...
Jul. 28, 2016 09:30 AM EDT Reads: 1,416
It’s 2016: buildings are smart, connected and the IoT is fundamentally altering how control and operating systems work and speak to each other. Platforms across the enterprise are networked via inexpensive sensors to collect massive amounts of data for analytics, information management, and insights that can be used to continuously improve operations. In his session at @ThingsExpo, Brian Chemel, Co-Founder and CTO of Digital Lumens, will explore: The benefits sensor-networked systems bring to ...
Jul. 28, 2016 09:00 AM EDT Reads: 1,620
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, discussed how leveraging the Industrial Internet a...
Jul. 28, 2016 07:30 AM EDT Reads: 544
There will be new vendors providing applications, middleware, and connected devices to support the thriving IoT ecosystem. This essentially means that electronic device manufacturers will also be in the software business. Many will be new to building embedded software or robust software. This creates an increased importance on software quality, particularly within the Industrial Internet of Things where business-critical applications are becoming dependent on products controlled by software. Qua...
Jul. 28, 2016 06:45 AM EDT Reads: 1,583
In addition to all the benefits, IoT is also bringing new kind of customer experience challenges - cars that unlock themselves, thermostats turning houses into saunas and baby video monitors broadcasting over the internet. This list can only increase because while IoT services should be intuitive and simple to use, the delivery ecosystem is a myriad of potential problems as IoT explodes complexity. So finding a performance issue is like finding the proverbial needle in the haystack.
Jul. 28, 2016 05:45 AM EDT Reads: 2,340
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportuni...
Jul. 28, 2016 03:15 AM EDT Reads: 2,662
Large scale deployments present unique planning challenges, system commissioning hurdles between IT and OT and demand careful system hand-off orchestration. In his session at @ThingsExpo, Jeff Smith, Senior Director and a founding member of Incenergy, will discuss some of the key tactics to ensure delivery success based on his experience of the last two years deploying Industrial IoT systems across four continents.
Jul. 28, 2016 03:00 AM EDT Reads: 1,656
The Internet of Things will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, demonstrated how to move beyond today's coding paradigm and shared the must-have mindsets for removing complexity from the develo...
Jul. 28, 2016 02:30 AM EDT Reads: 1,571