How will pricing excellence benefit your company in 2018?
By Steven Forth
Pricing excellence is a core capability. It is required for success in product and service innovation, in go-to-market execution and for sales. Why?
You and your customer must agree on a price in order to have a sale
Price is closely connected to how you create and communicate value
Price is the most powerful lever you have to improve revenue and profitability
Pricing and Innovation
You cannot afford to invest in innovation unless you are creating differentiated value and you can capture enough of that value to provide a return on investment and continue to invest in innovation. We call this the Value Cycle. Pricing enters the Value Cycle with Communicate. Your pricing model is a critical part of how you communicate value so that you can capture it later on.
Innovation should begin with insights into how you can create emotional and economic value for customers that they cannot get from some other alternative. Begin with value. Then find out how much of that value you can reasonably expect to capture (your pricing power) and set a strategy for how and how much of that value you want to capture (your pricing strategy). This work should come early in the innovation process.
Pricing and Go-to-Market
Pricing is also at the centre of your Go-to-Market strategy. The first step in figuring out how to go to market is to understand who you create value for and how. Then you need to understand how these people buy. Beyond this, you need to understand how they will adopt your product or service to get value. Your pricing model is where all of this comes into focus. It needs to help you capture your fair share of the value you create, while communicating that value to buyers, and encouraging use. Your pricing model is dependent on your market segmentation, your target customers and your value propositions. At the end of the day, pricing is where these marketing objectives connect with with your business strategy and your financial goals (the pricing model has a big impact on key metrics like Customer Lifetime Value and the Cost of Customer Acquisition).
Pricing and Sales Execution
Pricing and sales are often seen to be in conflict. There is an old joke that "sales sees pricing as the revenue prevention function" and that "pricing sees sales as the margin destruction function." When this dysfunction occurs it is generally a result of a failure to explain the pricing model and strategy to sales and a failure to equip sales with the tools they need to sell on value. Before addressing price, sales needs to establish the value of the offer. This means answering the critical questions "Why change?" 'Why this?" and "Why us?." Objections will always come up, and some of these will be around price and value. A good pricing model connects the value metric and pricing metric and makes it much easier to address these objections. It also makes it easier to structure discounts so that they are part of the business strategy, and not just reactions to customer pressure.
Ibbaka can help your company activate and embed pricing excellence and make it part of your success.
