Paul Charlton, Owner & Founder of The Pricing Factory

@PaulCharlton of @pricingfactory presenting at #GTDCEMEA16.

There was a great question from Howard Davies of @Contextworld at the GTDC meeting in EMEA in June: Do list prices matter? Here’s the final installment!

All the blogs so far have focused on answering the question. As is often the case with pricing, the answer to the question is actually of secondary importance. What is of greater importance is why the question was asked in the first place. You see, the question itself reveals that there is a pricing a problem, and immediately offers clues as to what the problem might be. When execs ask the question, they are very obliquely flagging one or more the following

• They don’t want you to change list prices;
• They are unsure that they will meet their targets, particularly if you change their list prices; their sales targets may indeed have been set too high, or the revenue and margin may be significantly out-of-balance; it’s highly likely the target setting did not take list price or discount reductions into account;
• They are thinking only about this quarter, and not even beginning to think about trying to set themselves up for success in the following quarter;
• They want more discretion & flexibility in discounting;
• They would like you to leave them alone mainly because they intend to dig themselves out of hole through discounting (which will invariably turn out to be inconsistent and unpredictable);
• They think they can haggle their way out of this by screwing good/friendly/weak customers.
• They are negotiating with you.

So they don’t realize it, but to me when they ask this question, it immediately raises a pricing red flag in my mind. There is a pricing problem here which needs fixing urgently. But while list prices aren’t the problem, they are definitely part of the solution.

Thank you Howard! Great question!

It is the only quick and simple across-the-board price lever, and so it is also one of the only quick and simple across-the-board business levers. By the way, if an across-the board list price move isn’t quick and simple, that’s something you need to fix asap. Here are a few applications:

List prices are particularly useful to mitigate adverse X-rate movements, for example a 4.5% increase across the board due to weakening of the pound, euro, Aussie $, whatever. It can be applied quickly with a clear rationale and justification to Sales, the channel and customers. It can also be combined with some product specific exceptions on specific items or categories which customers are either more list price sensitive to and/or require competitive adjustment. This type of price move combination will also check to see if your competition is on the ball by analyzing their response – or even the lack of it.

It is also useful as a lever to use in conjunction with a change in channel discounts. For instance, a reduction in channel discounts may be combined with a list price reduction to ensure that channel buy prices are the same or have some slight across-the-board decrease. This would mitigate the impact on the channel. There is no other way to do this in a subtle and refined way.

You should be able to use your “average-weighted list price premium†as a broad lever to drive your business as well. Make sure that not just each product is price positioned where you want them to be, but also that at an aggregated level – by product line, product group and total level – your pricing is competitively set. And you should know where those premium levels are for gaining share, holding share, losing share and shedding share. And if you’re a channel partner, shouldn’t you know what those price levels are for each of your vendors? And even if you don’t know, does your vendor?

Now tell me again, list prices don’t matter ……

More to follow!

Ever heard of that one? Think about it from a gaming perspective. You may think list prices are not important, but what if one of your major competitors does and they somehow make list prices work for them … wouldn’t that be costly …. not to say embarrassing …. and simply costly for those without any shame.

So this fits into the painful category of sometimes it doesn’t matter what you think: if the other guy/gal can make it count, then it matters, and what you think about it, does not ….

More to follow!

Nothing. There isn’t anything else. All of a sudden you don’t measure how well – or more likely, how badly – one of your key business drivers, pricing, is performing. Unless that’s what you intended.

Why do you need list prices?

– To be the basis of your competitive price analysis. If you don’t compare list prices with the competition, what exactly are you going to compare∠(That’s a rhetorical question.)

– To form a price positioning strategy: what else would you use to discuss value relative to the competition internally and externally? or sustainable competitive advantageâˆ

– It is the top of your pricing waterfall.

– It is the pivot point of your channel pricing framework: your list price should be positioned correctly v your competition, as should your channel buy-price(s). Your list price in conjunction with your contractual discount are the only ways to set and fine tune both.

– It is what you measure your discounting performance against. That’s probably why those who don’t think list prices are necessary don’t want them. I get it.

– It is what you should be measuring your sales compensation against: comp should include a discount performance component, and discounts should be measured v list price.

If there are more, please pipe up and I’ll add them to the list.

More to follow!

Howard Davis of @Contextworld asked a great question at #GTDCEMEA16: Do list prices matter? I’ve heard this question lots of times before, and I’m sure Howard asked me because he’s heard it even more times than I have. This is a continuation of a series responding to that question.

Businesses are list-price sensitive – as well as particularly sensitive to key list price points – for some products, but not all. That’s three different ideas in one sentence. If I was to unpack that I would say as list prices get lower businesses will (generally) buy more of most products. But once you get down to particular list price points on certain key products you will sell a boatload more. Your list price-demand function may well have steps in it. Notice the words “most†and “certain†in those sentences: it is equally important to understand which of your products exhibit little or no sensitivity, no point dropping list on those, if anything, quite the opposite.

I am not saying that businesses are not sensitive to the net price (list minus discount), but it is easier to manage pricing by making the list price do some of the work (are you in the right ball-park, have you something new to tell the customer, are you competitive, discuss value) and the discount (quid pro quo) the remainder. If you leave it all up to discounting, you’ll invariably end up with a problem controlling discounts and customer (dis)satisfaction due to inconsistent and unpredictable discounting.

The reason why business are list price sensitive is because customers can work out what a list price means to them. They don’t think of pricing as just the net price, but as the list minus their expected discount.

Once you hit those key list price points, customers can get pretty excited and that excitement can and will drag a whole boatload of other, less price-sensitive product or services with it. In fact, they can get so excited I would warn you that you need to work closely with your demand-planners so that they know several months in advance from your pricing roadmap when you’re going to hit those points, so procurement can hit those cost points, and supply-chain can get the material positioned ……

And if you haven’t find those key list price points, then you better start looking before your competitors find them …..

More to follow.

Thank you Howard Davis of @Contextworld! Once again, great question!

Howard Davis of @Contextworld asked a great question at #GTDCEMEA16: Do list prices matter? I’ve heard this question lots of times before, and I’m sure Howard asked me because he’s heard it even more times than I have. This is a continuation of a series responding to that question.

Customers need to know – before you even try and sell them something – is this going to be the price of a Yugo, a Corolla or a Rolls Royce solution? They need to know if they are wasting their time, and you also need to know if you are wasting yours. The sooner you know, the sooner you can move onto a customer who might actually buy something.

There was a nice thread on Spiceworks last week which highlighted this really well. This all came out a frustration with IT folks not being given a List Price (MSRP) by an IT vendor. These people may all be in SMB outfits, but at the end of the day, we all do business in a similar-ish sort of way, irrespective of the size of the organization. Here are some selected highlights. When you read these ask yourself this: is this how you want your prospective customers to react to your offer?

J: “It was an interesting concept but they refused to tell a room of over 30 SpiceHeads even a basic MSRP when directly asked. I fucking hate that.â€

S: “They refused, that’s weak. That kinda says that pursuing any further information isn’t worth the effort.â€

N: “‘Good grief. Not even an average price for their “Custom” configs? If they won’t tell you in a situation like that, then they’re too expensive.â€

S: “I think a lot of sales people really forget how tremendously important it is for us to have some idea what things will cost. If something is “you know, round about $5,000” we might be looking to rip and replace everything, today. But if is “somewhere north of $500K” we can write it off and never think about it again. If they won’t tell us, we are forced to assume the later.â€

J: “As one of the people that was at the SpiceCorp meet up, the presentation and presenters were decent. They taught us well and answered questions well. Except for the point on price. But for me, that is a walk away issue. … If you make me sign up for spam and marketing email/calls just to get a basic, rough MSRP, then you will not get me as a customer. Ever.â€

N: “When you’re shopping for a mid-range new car do you go test drive a Rolls Royce or a Lamborghini? No, because you know they are way out of your price range and there’s no point wasting your time or setting your expectations too high. All we’re asking for is a general indication of what price category we’re looking at. Are you a Yugo, a Corolla or a Rolls Royce solution?â€

J: “I do not care what you like to do and how you want to play safe with some guarantee on a piece of tech that I may or may not even damn buy. I am not going to waste my time doing the discovery you want in order to decide I do not want to pay for your damned product. FFS give me a price.â€

R: “Most IT folk don’t want to fight a sales dick for pricing just to see if their solution is in the ballpark. What S said about instantly dismissing your product/company over you not providing pricing is spot on. That’s how we do things. For me no pricing = no sale.â€

So there you have it. List prices (MSRPs) do matter. Customers need to know if they are in the same ballpark as the vendor. They need to know if they are wasting their time looking at your product. Don’t you need to know if you are wasting yours looking at them as a customer?

Out of the mouths of babes. Well, maybe not babes …..

BTW, a user with experience of the vendor suggested that their pricing was that of a Tesla roadster. Now why couldn’t the vendor have either said that or had that accessible on their website?

More to follow.

Thank you Howard Davis of @Contextworld! Once again, great question!

When Sales suggest this they’re wanting to not only maximize their flexibility but also avoid scrutiny of their sales performance. Sales will throw in the word “competitive†as a pre-emptive strike/warning/threat to the product group: don’t complain about my discounting, and I will not complain that your products aren’t cost competitive. You stay on your side of the fence, and I’ll stay on mine.

Nevertheless I – as a pricing person – want list and discount because I will make sure the list prices are positioned correctly v. the competition – and you can hold me accountable to that – but I do need to be able to measure the discounting results to assess (a) how good the discounting policy is (or not), (b) how good was Sales’s discounting performance (or not), so (c) I can work out how to optimize End-to-End Pricing to improve business outcomes. So when Sales make this statement “All I need is a competitive net price to the customerâ€; it is a red flag. Just like the question “Do list prices matter?â€

This stand-off (if you can call it that) is institutionalized by the way that most high tech companies are organized and responsibilities assigned: product groups responsible for the list price, product cost and pricing strategy, with – in a completely separate management chain – the sales regions responsible for discounting, closing deals and sales comp. So the end result is that typically there is no line-of-sight for end-to-end pricing. And while businesses are organized like this, their customers’ purchasing departments are taking full advantage of their suppliers’ pricing dysfunctionality …. every day.

More to follow.

Thank you Howard Davis of @Contextworld! Once again, great question!

 Making international #channel pricing work: @PaulCharlton of @pricingfactory presenting at #GTDCEMEA16. There was a great question from Howard Davies of @Contextworld at the GTDC meeting in EMEA in June: Do list prices matter? Here’s Part 2 and the start of what more I could have said at the GTDC had time allowed:

No-one pays list. That may be true – particularly in tech – but it doesn’t mean to say that  list price is not important. From the vendor’s perspective, it would be impossible (not economic) to manage each and every net price, whereas it is possible (economic) to manage list + discount, particularly when the discounts are policy driven and not an outcome of a “you gotta haggle†discounting strategy.

And from a customer perspective, they don’t think just in terms of net price. They’re smart enough to be able to envisage list minus discount = net, and understand the trajectory of all three of those parameters over time, part number by part number, product category by product category, solution by solution, deal by deal. Why? Because your sales behavior has forced them to.

So if you think that list prices don’t matter, you – vendor sales – are most likely being out-thought by your customers’ Purchasing departments. But there is more to it than that. More to follow.

Thank you Howard! Great question!

 Making international #channel pricing work: @PaulCharlton of #pricingfactory presenting at #GTDCEMEA16. There was a great question from Howard Davies of @Contextworld at the GTDC meeting in EMEA in June: Do list prices matter? I’ve heard this question lots of times before, and I’m sure Howard asked me because he’s heard it even more times than I have. Here’s the answer I gave Howard:

You need to work backwards from the objective you are trying to achieve. What businesses typically want and need are – not any particular pricing strategy – but consistent and predictable business outcomes. No matter how much growth in revenue/margin/risk reduction you can achieve, what your investors will value above all else is consistency and predictability. So Pricing needs to help businesses be consistent and predictable (bottom right-hand box): I’ve not come across any business leader who has objected to this approach … somehow all the discussions about particular pricing strategies disappear when I put this on the table.

And so working back from that, if you want consistent and predictable outcomes you need to have consistent and predictable discounts/discounting (middle-center box). No-one gets consistent and predictable outcomes is they have inconsistent and unpredictable discounts, do they?

And working back from that, the only way to get consistent and predictable discounts/discounting is to have consistent and predictable list prices (top left-hand box).

Yup. List prices do matter because what you want to do is build a sustainable and repeatable process/system which is designed to produce the consistent and predictable outcomes you want.

This is the answer I gave to Howard but there are other ways of looking at this. More to follow.

Thank you Howard! Great question!