How you price your products and services can catapult you into the stratosphere--or tie a noose around your neck. Every marketing company lives or dies by these decisions.
This is one key area where technology alone won't save you. Many of those models look deeply at existing demand for your products, as well as the competitive landscape, and present you with a mathematical conclusion about your ideal price point. The trouble is, these financial models don't take into account context--or the value proposition you're offering.
I still draw inspiration from a 20-year-old book, The Discipline of Market Leaders, by Michael Treacy and Fred Wiersema. Their basic premise is that no great companies can be all things to all people; you have to choose what sort of organization you are--and exactly what value you're delivering. They divide the world in three: Are you primarily a product company? a customer-service driven operation? or an operationally efficient enterprise? Think of the different value propositions of Apple (products); IBM (customer service); and Costco (efficiency).
Until you decide what kind of company you are, you can't develop an effective pricing strategy. Product-oriented companies can command premium prices because they deliver truly distinctive goods and services. Customer-centric companies have to be middle-of-the pack in their pricing, though they can command a degree of a premium based on outstanding service. Companies grounded in operational efficiency present a value-based model, and so must price themselves below the midpoint.
What are you? You can be some of all three. But you have to major on one.
Whatever type of company you decide you are--and the appropriate price points you adopt--be wary of the so-called la carte model. What's that? Think of the menu at The Cheesecake Factory: pages and pages of every variety and ethnic flavor of every appetizer, salad, entre and dessert you can think of. This is not a knock on their food. But it is a bit overwhelming when it comes time to order.
If you're a premium model, you can't be la carte, too. Try it, and you end up like a high-end hotel that charges $500 a night for a room...and hits you up with $18 charges for wi-fi, $7 for a bottle of water and $5 for salted nuts. Nickel-and-diming your customers only undercuts your value as a premium-priced company.
Here are three rules of effective pricing. Steal them--and, by all means, use them:
- Align with the culture of your company. Know who you are, what you're about and the value of your products and services.
- Practice simplicity. Customers prefer it, whether they're buying a car or a smartphone. So many B2B companies mess this up, confusing their sales force and slowing down the buying process.
- Do financial modeling. You have to make sure the cost of goods sold are in-line and priced competitively to the marketplace, profiting to the maximum degree possible. This is where the technology tools and your finance guys are really critical--but not until you've gone through rules 1 and 2.
Most of these rules apply to B2B companies. But they also take a page from B2C organizations. Some of the most important lessons about marketing that I've learned come from my experiences as a consumer.
To take one example, at my company, InsideSales.com, we're in the process of choosing a creative and brand agency. Some firms start with a great pitch about all the great companies they've serviced. That doesn't really impress us. We're much more excited by what you might've done for, say, Nike, than your work for another high-tech software company.
That's because some of the most successful pricing and sales strategies, to say nothing of digital experiences, are built around the end user--not the buyer. Sure, if you're a tech company, you're tempted to organize everything around administrators and purchase agents to address their pain points and solve their problems. But a more consumer-driven approach can help you sell more and sell smarter. Think of it as a Field of Dreams play: If you build it for the user, the buyers will come.