March 6, 2008
News & Opinion: Excerpt from Pricing With Confidence
The following excerpt is a summary of Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table. From the publisher: "Bad pricing is a great way to destroy your company's value, revenue, and profits. With ten simple rules, this book shows you how to deliver both healthy profit margins and robust revenue growth while kicking the dreaded discounting habit. The authors destroy the conventional wisdom that you have to trade margins for revenues and show you how to fully exploit the value your company offers customers. This is a proven plan for increasing sales without sacrificing profits."
Pricing with Confidence
By Reed Holden and Mark Burton
Face facts: Customers have never met a price they liked. And they will use every trick in the book to get you to lower your prices and give up profits. The typical business response is to discount, discount, discount--resulting in less revenue and lower profits.
In Pricing with Confidence, pricing gurus Reed Holden and Mark Burton offer a radically different solution--one that actually builds revenues and profits without lowering prices. The key? Linking prices charged with the value delivered. The real trick is to bring people from marketing, product development, sales, and senior management into the process of discovering and defending the value you create for customers.
Holden and Burton show you how you can get everyone in your firm to feel 100% confident in your pricing--no matter what customers are saying or how fierce the competition. By following the 10 simple rules outlined in Pricing with Confidence, you will be able to hold steady or even raise prices while your customers experience increased value for every dollar they spend. The result? Increased revenues and profits.
Pricing with Confidence is a roadmap for senior leadership in sales, marketing, finance and pricing to work together to outperform competition. Pricing with Confidence is organized into ten simple and practical rules to help senior leaders tackle rampant price discounting, negotiate with poker-player like customers, and protect the value a company works so hard to create.
Try these ten rules to give everyone at your company pricing confidence:
- Replace the discounting habit with a little arrogance. Price discounting is an entrenched attitude in most organizations. To dislodge any deep-rooted attitude, replace it with another. Arrogance--feeling good about your products and services--will help you kick the discounting habit.
- Understand the value you offer to your customer. You can't have confidence in your pricing until you have confidence in the financial value your offerings create for customers. Most of your customers are eager to tell you. Ask the right questions and be willing to listen.
- Apply one of three simple pricing strategies. Know when to price high, when to price low, and a strategy for everything in between. To create confidence in your prices, strategies can and should be simple and agreed to by everyone in the firm.
- Play better poker with customers. Most customers say value is what they most want, but many are bluffing when they ask for a discount. Some are motivated by price alone. Others want--and are willing to pay for--value. The trickiest types are the poker players, who love to play the pricing game and have learned that if they focus on price, they can get vendors to leave money on the table but continue to provide high-value features and services. Knowing the strength of your own hand--the value you offer--gives salespeople confidence to resist the temptation to close at any price.
- Price to increase profits. It's a myth that if you discount price to increase sales, you will see increased profits. Profits result when an organization does many things right, including simplifying costing approaches so they permit more effective use of your company's resources, be they people or machines. Efficiency, controlling costs, better profit metrics--all are required for pricing success.
- Add new products and services that give you negotiating flexibility and growth. When your products are regarded as commodities, add services to differentiate products and prop up prices. An effective strategy is to develop a dual offering that covers both the high- and low-end customer needs. If customers want a lower price, subtract features and services.
- Force your competitor to react to your pricing. Don't participate in a competitive pricing death spiral. Map your markets. Define where you do and do not have a value advantage over your competitors. Know where and how to compete on price--and where and how not to.
- Build your selling backbone. To have confidence in negotiation, salespeople and managers need confidence in pricing. This comes from knowing the value of your products or services. It also comes from knowing your customer. Backbone comes from knowing the tricks your customers use to get you to drop price and how to deal with them.
- Take simple steps to move from cost-plus to value-based pricing. There is nothing wrong with cost-plus pricing as long as it does a good job of leveraging the financial value you create for customers. Value-based pricing is an ideal. It requires sophisticated internal skills and systems. The trick to value-based pricing is to evolve pricing as the discipline and skills of your people improve. Start gradually. Once you learn those skills, moving forward to real value-based pricing is a snap.
- Price with confidence: Remember who you are. Shift the negotiation to how you provide concrete results for your customers. Customers buy results, not rhetoric. Moving beyond the rhetoric of value will enable you to prove those results to customers.
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Reed Holden, DBA, and Mark Burton are leading pricing gurus and cofounders of Holden Advisors (holdenadvisors.com), a consultancy that works with business-to-business firms to design and implement value-driven pricing strategies that increase profitability in highly competitive markets. They are coauthors of Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table (John Wiley & Sons, 2008).