Why Pricing? Why Now?
By Steven Forth
Why is Ibbaka focused on pricing?
With a diverse and talented team, there are many businesses we could go into. We already have a business developing eLearning and performance support systems for activating and embedding marketing strategy across organizations. Also, we believe that market segmentation is the foundation of marketing, and indeed, of innovation. We could have entered the market by applying AI and machine learning to market segmentation and customer targeting. Indeed, we will have to do this to properly deliver on pricing. Many of us are passionate about scenario thinking and have designed scenario thinking programs. We had some very good where to play choices, so why lead with pricing?
Pricing is where marketing strategy gets real
Your customer does not care what segment they are in. They may or may not believe your value proposition. If you are lucky, they will find some new way to use what you are selling and create new value. But at the end of the day, you and your customer have to agree on a price or their is no sale.
Pricing has the most immediate impact on the business
It is well known in pricing circles that a 5% increase in price will have a bigger impact on profit than a 5% increase in sales or a 5% decrease in costs. We are building a Pricing Calculator to make it easier for people to understand how price interacts with other critical elements of the revenue model, from revenue, itself, profit, demand and market share. The other nice thing about price is that a price change has an immediate impact. You don't have to wait for cost cuts to work through the system.
Pricing is the best diagnostic tool
Pricing issues are often symptoms of other problems. Exploring pricing is an excellent way to probe how, and if, an offer creates value which is fundamental to innovation, if the offer is being marketed to the people that will get that value (segmentation and targeting), if value is being communicated to the buyers (value proposition, value communication). Segmentation, targeting, value proposition and communication, and even how to sell, are the central activities of marketing and pricing gives direct insight into them all.
For more thoughts on this see Your SaaS Pricing Problem Goes Deeper Than You Think on OpenView Labs.
Pricing lends itself to machine learning
The immediacy of pricing impacts makes it a good candidate for the new generation of machine learning software. We are living in a world that is awash with data, but we struggle to make sense of it. Pricing is a powerful lens by which to do this. The power of data and the new sources of data is one reason Ibbaka is focused on B2B SaaS, Internet of Things and marketing platforms. All of these, especially in combination, open new possibilities for the pricing, segmentation and targeting software that Ibbaka is building.
For more thoughts on this see Build Your Pricing From the Data Up on OpenView Labs.
Why a value-based approach
Ibbaka's advisory services and software are built on value-based pricing as developed by Tom Nagle and described in his seminal book The Strategy and Tactics of Pricing. Why? Because value is the most powerful lens we have for understanding what and why customers buy and is the best guide to pricing strategy. Value is always relative to an alternative (so understanding value also depends on the competitive analysis) and has both emotional and economic dimensions. A successful pricing strategy combines both. Ibbaka's approach combines formal tools like Economic Value Estimation or EVE(tm) with an understanding of how the emotions and the experience of fairness shapes pricing strategy. Our goal is to move away from transactional models, where pricing is seen as a zero-sum game, to create pricing strategies that are win-win. Value-based pricing is the way to do this.
We hope you will join us on our journey into pricing strategy, and invite us to work with you to take your own pricing to the next level. Contact us about our Pricing Diagnostic service. We guarantee a 5X return on your investment in understanding your pricing.
