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
- 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