Make Your Pricing More Effective ...
 88% of companies said it was someone else who started it.
Only 5% reported that they started it on purpose.
And 7% said that they started it accidentally.
It seems highly probable that many of the 88% actually started the price war without realizing it …. or maybe are in denial.
Have you ever started a price war by mistake?
Presented at the Professional Pricing Society Conference in May 2015 by Prof. Dr. Dr. h.c. mult. Hermann Simon (Source: Simon-Kucher & Partners Global Pricing Study 2014)
 •  59% of companies reported that they are currently engaged in a price war.
•  19% reported that there is a price war, but that they are not involved.
•  Only 22% reported that there is no price war.
Presented at the Professional Pricing Society Conference in May 2015 by Prof. Dr. Dr. h.c. mult. Hermann Simon (Source: Simon-Kucher & Partners Global Pricing Study 2014)
Happiness, n. A feeling of well-being which is directly proportional to your gross margin %.
The Pricing Factory® has now been registered by The Pricing Factory LLC with the Patent and Trademark Office, Reg. No. 4,762,262 as of June 30, 2015, for Business Management Consulting Services in Class 35 (U.S. CLS. 100, 101 & 102). First use September 1, 2014, Ser. No. 76-717,033, filed October 14, 2104. Awarded by Nicholas Altree, Examining Attorney. Legal Services provided to The Pricing Factory® by Justin M. Welch of Blazier, Christensen, Bigelow & Virr. Thank you.
“How Effective Pricing Can Enable Business to Achieve Their Strategic Objectives” by Paul Charlton of the Pricing Factory®, has been published in Q2 2015 edition of The Journal of Professional Pricing Read more ……
Why does everyone like the product except for the Pricing Team?Sometimes you get these products that everyone loves. Except for the Pricing Team. A good example of this that I came across was a small form factor version of a best-selling product. The product team loved it. Their product group management loved it. Their business unit management team loved it. Corporate loved it. Journalists and analysts loved it. The product was often physically demo’d – perhaps because it was so small – so it was also physically very visible and very tangible.
But the Pricing Team couldn’t see why anyone would buy it. It made more sense from a customer’s perspective just to buy the original, bigger and only slightly more expensive but ultimately much better value for money model. We couldn’t get the pricing to support the value proposition and still make money. The product flopped. Sometimes it’s a good idea to ask the Pricing Team if they like the product or not, before you buy all the material to build it ….
As resources get cut, portfolio management often gets a disproportionately high hit. As a result, issues often only arise way later in the new product introduction process than they should. Sometimes it’s only when the Pricing Team starts to develop the final inter-line and intra-line pricing just prior to launch (because it’s only then that they get accurate data to work on).
The best bad example I came across was one launch where each server platform PM had taken a very subjective and unique approach to selecting the processors that would be available on their platform. Each one had been influenced by their demand planner and the processor pricing roadmap in different ways. No two server platforms had the same processor selection. The PM for the server platform which was planned to have the lowest volume, had selected all the processors. Conversely the two servers which had the highest volume and could have justified more processors – you guessed it – had the fewest. Some models had their discontinuation announced as soon as they were launched, others models had to be rushed into production in the following product launch.
Why is it that the first thing a business leader wants to review when it comes to launching a new product is the Pricing Strategy? One way to handle that – and win some time – is to ask if there are two essential pre-requisites for a Product Pricing Strategy: a Business Strategy and a Go-To-Market Strategy. After a silent pause, ask them if they’d like a couple of weeks to come up with one. The pricing process should not only highlight the existence or non-existence of the Business Strategy and Go-To-Market Strategy. but also their viability and robustness.
Symptoms of this can and will include: higher than expected costs; lower than expected prices; and gross margins that are consequently squeezed; “pauses†in product cost updates from the development team; adverse product cost surprises which appear late in the process; an absence of profitability across multiple products within the same business area.
In one case, a product team deviated from the documented procedure and didn’t ask the supplier to update the product cost quote every time the engineering specification was changed. So two weeks prior to launch, the supplier took full advantage of processing six months of engineering change order requests in one go. The product team didn’t have a leg to stand on. The product – which used to be a top 3 seller for the company – was ultimately discontinued and the development team “disbandedâ€.
Pricing can also be used to see if the competition is paying attention. Do they respond to your price moves as quickly as they should? Do their moves make sense? How consistent – or rather inconsistent – is their response? In one case we made an aggressive price move which we knew would pay off for us. But when our competitor didn’t respond we knew they were asleep at the wheel. We not only knew that the pay-off would be bigger, but we knew that we had found our competitor’s weak spot. So the following quarter we double-downed and made another aggressive move. We used to count the days before they responded. And then the weeks. And then the months ….
Is your product cost competitive?The most obvious case of this is when your cost is higher than your competitor’s list price. One particular product I came across certainly had this problem. When we had launched it there was no competitor product, but now there was. The 1st red flag was that it had – according to the Product Manager (PM) – 10 Unique Selling Points. This is way too many. Usually the problem is opposite: you don’t have enough or even any USPs. Or you do have them but no-one is able to articulate them succinctly or quantitatively. The 2nd red flag was when it took the PM more than 45 minutes to explain just the first three USPs and we didn’t get beyond the first slide in a 60 slide deck! Clearly the product had been over-specified and over-engineered. The fix in this case was to cut the price by 75% to make it competitive until it could be replaced by a much simpler, lower cost version with “only” 3 USPs. The more challenging ones aren’t so obvious, but I will return to those in a later blog post.
A quantitative value proposition needs to be a prerequisite before New Product Introduction (NPI). It should be quantitative and verifiable so that it’s not just a meaningless, fluffy bunny statement. The most successful example I ever came across was one which the CEO could quote with ease to both press and analysts. Not coincidentally, the product launch was also a great success and no-one complained about the pricing: the quantitative value proposition did all the hard work for us. Even though extracting that original value proposition from the PMs had been like trying to get blood out of a stone, after this product launch I never had to ask the PMs from this business unit for a quantitative value proposition. They always had one ready.
I noticed that whenever we changed the price of our traditional product, the Product Manager for the new format version of the product would not only be in the meeting without fail, but they would also request a price change too, even if their direct competition hadn’t changed their price. Well, in a way it was good that the new format PMs were paying attention to pricing and that they wanted to maintain a consistent interline. In another way it was bad, because ultimately the easiest way for them to be successful was not to take share away from the competition, as you would hope they would, but to take it from our existing customers of our traditional product. Classic product cannibalization. Sure enough, even though the new format product was #1 in market-share for its segment, over time it didn’t increase the company’s total share of the market.
Sometimes new products – particularly those which create a completely new product category – can require a quantum leap in selling skills and effort. Unfortunately, Global Product Groups are often so engrossed in the development of the technology and supply chain activities, that there isn’t an equivalent focus or effort on Go-To-Market or sales readiness in the Sales regions. The Pricing Team will uncover this because the problem will first be escalated as “pricing problem†from the field: “we’re not competitive”. The Pricing Team should assess Sales’s capabilities as they follow-up on these escalations to see if it really is a pricing problem or not.
Sometimes it is just impossible get management to agree to competitive prices moves despite the fact that the actions adhere to the pricing strategy and make absolute common sense. Management will come up with elaborate and articulate reasons for not taking the price move, or stalling on making a decision. In these cases, the problem is often that the financial targets are just unrealistic and unattainable. Here the Pricing Team can really help management out. They are probably the only ones who can articulate, quantify and explain why – sometimes – financial targets are simply unrealistic and unattainable, and – more importantly – what can be done to remedy the situation. Let’s face it, who else is going to do it? Finance isn’t going to do it. They were the ones who created or contributed to the problem in the first place. And for some reason management tends to take financial targets as if they were inviolable tenets written in stone.
In one situation I was in, Finance hadn’t factored price decreases into their business targets or their financial forecast updates, even though a price war with their main competitor was in progress. When I pointed this out to Finance and had them rectify it, their forecast revenue for the year was reduced by >$1B. After that, getting price action approval became a lot easier, the business was much more competitive, it started to grow again and was easier to manage. The Senior Vice President even kept his job! Unfortunately I could cite a lot more cases like this. This problem is far more common than people realize. This is one reason why Pricing input into the annual target setting process is essential. And the >$1B? It never existed except in someone’s fantasy in Finance.
Cheers from The Pricing Factory!
I am pleased to be able to announce that Tony Santucci has joined The Pricing Factory, LLC. Tony has many years of experience managing product pricing, product planning and commodity supply chain at a wide variety of enterprises such as GE, Coopers Industries, Compaq & HP. At Compaq & HP, Tony managed global pricing for ProLiant rack and blade servers, developing product pricing strategies, creating and updating competitive analysis and formulating price proposals. He also has experience as a segment product planner managing product life cycle volumes, price, revenue, margins, product mix and market-share. Previously Tony spent many years at Cooper Industries and GE leading multi-functional teams identifying risks and developing business-specific tactical and strategic risk management programs to meet business objectives and protect operating margins. He analyzed market data to create short and long-term commodity forecasts and managed commodity hedge programs.
Tony’s ability to generate unique and meaningful insights will be an incredible asset for us. He has a bachelor’s degree in finance & accounting from Pace University, Pleasantville, NY.
Welcome Tony!
Pricing. It’s not just about coming up with a pricing strategy or a price point. Or even attaching price stickers to products on store shelves as one of my neighbors once thought. Pricing can be an incredible lens through which you can scrutinize your entire business. You need to make sure that your pricing analysis takes a holistic view of the business. That you look at the whole business, beyond the narrow confines of what is purely pricing. This is particularly necessary when pricing isn’t the cause of your pricing problem, it’s only a symptom. A holistic approach will not only help avoid taking expensive, unnecessary and ultimately unsuccessful pricing actions, but will also help identify root causes to problems which may have otherwise remained undetected without the scrutiny of that pricing lens.
In these situations your pricing analyst should find out what the cause of the problem is, and work with their non-pricing colleagues who really own the problem, to come up with a joint solution. Executives like to know that someone is proactively uncovering problems. But what’s even better is when they are presented with not only the problem, but also the solution. And the team that created/owned the problem? They are now part of the solution so it becomes a win-win for everyone.
High List (Price), High Discount, n. technical, obsolete. How to undermine your investment in your branding and devalue your own value prop with a few carelessly chosen words, like "80% discount". … [Read More...]
Price Floor (2), n. a tell. A red flag when requested by a rep. It's a flaming red flag when requested by a rep before they've even engaged with the customer. It's a flaming red flag on … [Read More...]
Price Floor, n. technical. 1) The deal price at which you no longer need a Sales Rep; 2) The deal price which, if you did all deals at, you would no longer need a Sales Department. … [Read More...]
Disruptive pricing, n. gerund, aspirational. When striving for consistent and predictable outcomes just won't do. Get your disruptive pricing in first, before the opposition does. … [Read More...]
