Blue field like crop rows and burgundy border, saying "Don't Just Survive - Thrive

Pricing with Confidence

By Reed K Holden and Mark R Burton

1. Replace the discounting habit

  • If you talk with customers about price, there is no price that is going to be low enough. Start with value. If asked for a discount, start with “what do you know about us and how confident are you that we can solve your problem?”
  • Be arrogant about your product – be  confident in your value
  • Be willing to fire unprofitable customers
    • Focus on the least profitable 5-10% and stop fire them
      • This increases profits
      • Sends signals to customers and sales staff that we have standards
      • Will free up resources to find more profitable customers
2. Understand the value you offer to your customer
  • Win:
    • Create a range of low- to high-value items
    • provide quantifiable value propositions
    • create pricing strategies that capture a fair share of the value
  • Connect the price with the value that you bring your customers
  • Understand the attributes of the customers that seek or receive different levels of value
  • Ask your customers, and then have answers
    • What do you really need from us?
  • Conduct interviews
    • Data discovery – specific examples, insights into customer models, direct comparisons with competition
    • internal interviews with staff
    • customer value profiles (make hypotheses from what you’ve learned)
    • customer interviews – validate or discredit those interviews
      • what’s a critical success factor for customer?
      • what’s a critical process?
      • what keeps them awake at night?
      • what are their future aspirations
      • how do you use our service in your everyday life?
      • what’s most valuable to you and why?
      • what results do our offerings help our customers achieve?
      • who is the next best competitive alternative and why?
      • what can they bring to the table that we cannot and vice versa?
      • what sacrifices would be involved with using the various alternatives?
      • THANK  the people who responded personally (a letter)
    • develop an understanding of the common thread between customers in a segment
    • produce a series of strong value propositions for sales staff and a series  of questions for sales staff to ask to see if there is a need for your offering
      • develop offerings that clearly connect to customer value needs
      • define price points
      • create high-impact value propositions and tools
3. Apply one of three simple pricing strategies
    • Skim pricing – differentiates from the competition (either more expensive or less)
    • Neutral pricing – close to the competition with intention of reducing the impact of price competition
    • Penetration pricing – price to be primary driver of a purchase decision
4. Play Better Poker with Customers
  • Price buyers – don’t let themselves get committed to any particular supplier by making sure they have no switching cost: offer bare minimum options for them and don’t expect loyalty
  • Value buyers – people who recognize the flaws of price-only purchasing: meet the budget and provide analysis that shows value
  • Relationship buyers – close relationships with their supplier: these people are loyal but it may take a while to get them, start off with small elements of a solution so they can test and see the value for themselves
  • Poker-playing buyers – they like playing the pricing game who want to get the most out of the deal

5. Price to increase profits

  • Stop worrying so much about revenue and worry more about profits
  • Move from revenue to profit focus
  • Efficiency = #1
  • Break down costs in detail – don’t average, or you’ll lose data on actual income/expenses
  • Get butts in the seats when there aren’t any (like offering morning pricing or something)
    • Plenty of capacity: low -priced offering, protect high-value offering, make lots of fences
    • Transition: advice low-value customers of capacity risks
    • No capacity: don’t take low priced business, charge high premiums for increased access and control
6. Add new products and services that give you negotiating flexibility and growth
  • Innovate for growth and price for profits
  • Match offerings with high-value needs of target customer segments
  • Offer low-value flanking products that appeal to price-sensitive customers and reduce the effects of price negotiations on high-value offerings
  • Meet or beat competitive performance on core customer needs
  • build strong fences between offerings
  • enable sales to have clear discussions with customers to define price-value tradeoffs
  • arm sales with well-defined value levers to alter offering value and price
  • core offering – minimum attributes that make the offering viable for majority of customers
  • expected offerings – add things to the core to meet specific segments
  • value-added options: service, consulting, etc
  • Bundle: get customers to upsell by offering a lower bundled price than the sum of the component prices; create opportunities to earn more for your value with groups of customers that place different levels of value on individual components of a bundle (social, training, etc)
    • Start with a simple approach to customer segments. Find your core users and target them.
    • Develop the bundle for segments with high to low values to accommodate behaviors, ask – are they together because it’s logical or because you hope you can create something (aka, NO, don’t do it)
    • Price individual items higher than combined bundles
7. Force your competitor to react to your pricing
  • Improve understanding of the environment
  • Determine pricing strategy
  • Develop a communication policy
  • Determine what to say
  • Determine what to do – practice what you preach
  • Monitor results and improve the system
8. Build your selling backbone
  • Focus on what makes you awesome, not the same as your competitor
  • Believe in your value
  • Remember who you are