Pricing With Confidence

PRICING WITH CONFIDENCE10 Ways To Stop Leaving Money On The Table

AUTHOR: Reed K. Holden And Mark R. BurtonPUBLISHER: John Wiley & Sons, Inc. DATE OF PUBLICATION: 2008201 pages

Pricing With Confidence by Reed K. Holden and Mark R. Burton

FEATURES OF THE BOOK

Pricing with Confidence is a road map for senior leaders in sales, marketing, finance, and pricing. It is organized into ten rules designed to help senior leaders tackle the habit of discounting, deal with a wide range of customers, discover the value that their company offers and defend that value in price negotiations. Pricing gurus Reed K. Holden and Mark L. Burton offer practical step by step processes as well as extensive charts, diagrams, anecdotes and case studies to illustrate the ten ways to stop leaving money on the table.


THE BIG IDEA

In Pricing with Confidence, Reed K. Holden and Mark R. Burton explore the rules of engagement that put

companies back in the driver’s seat during price negotiations


INTRODUCTION

In Pricing with Confidence, Reed K. Holden and Mark R. Burton offer ten rules of engagement that put companies back in the driver’s seat during price negotiations. Their solution builds revenues and profits without lowering prices and gives everyone in the organization the confidence to stand up to competitors and naysayers. The key is linking price to the value provided. By discovering and understanding the value they create for their customers, companies can defend their prices, stand out against competition and capture the money that they used to leave on the table.


RULE ONE: REPLACE THE DISCOUNTING HABIT WITH A LITTLE ARROGANCE

In Rule One, Holden and Burton urge managers and salespeople to change how they approach conversations with customers. Instead of talking about price, they suggest starting the conversation with value. Holden and Burton implore companies to stop the habit of discounting and replace it with unwavering confidence in the value of their product. By replacing the habit of discounting with a little arrogance, companies will develop the backbone to demand payback for the value they create for their customers.


RULE TWO: UNDERSTAND THE VALUE YOU OFFER TO YOUR CUSTOMER

Holden and Burton present the following step by step process for understanding customer value:

Data Discovery: Plot all data into a data file and understand what it reflects about the customers.

Internal Interviews: Talk with sales, marketing, and service executives within the company.

Customer Value Profiles: Develop an initial hypothesis about how customers use the company’s products or services and how they get value from that use.


RULE TWO: UNDERSTAND THE VALUE YOU OFFER TO YOUR CUSTOMER

Customer Interviews: Use customer interviews to validate and/or discredit the internal analysis and develop new value profiles as needed.

Business Value Models: Map out how customers make a profit and how the company’s offerings help in that process.

ROI Tool and Value Propositions: Create a series of strong value propositions that salespeople can use and a number of qualifying questions to determine if there is a need for the company’s offering.


RULE THREE: APPLY ONE OF THREE SIMPLE PRICING STRATEGIES

Holden and Burton offer three simple pricing strategies to choose from.

Skim Pricing Strategy: Prices are set high relative to the competitor’s. This strategy is used to maximize revenues coming from the high end of the market.

Neutral Pricing Strategy: Prices are set close to the competitor’s. This strategy is important for companies who want to take the focus off the price of a product.

Penetration Pricing Strategy: Prices are set low compared to the competitor’s. The objective of this strategy is to make price a major factor in the purchase decision.


RULE FOUR: PLAY BETTER POKER WITH CUSTOMERS

Once a company chooses a pricing strategy, it is important to craft the right customer approaches so they do not waste time or leave money on the table. In Rule Four, Holden and Burton identify four main types of customers:

Price Buyers: Customers who buy only based on price. They do not care about bells and whistles.

Value Buyers: Customers who buy based on the company’s ability to improve their finances. These customers regularly evaluate the value of the company’s product as well as the value of their competitor’s products.


RULE FOUR: PLAY BETTER POKER WITH CUSTOMERS

Relationship Buyers: Customers who rely on strong relationships with suppliers. They view the company as their partner and trust that they are offering the best solutions and services.

Poker-Playing Buyers: Customers who love to play the pricing game. They know suppliers will do just about anything to get their business.


RULE FIVE: PRICE TO INCREASE PROFITS

The most important purpose of price is to improve profits. According to Holden and Burton, one of the most destructive myths of business is that if companies grow the top line by increasing sales, then profits will take care of themselves. The problem with this myth is that it encourages managers to lower prices for the sake of increasing sales. Similarly, this approach causes salespeople to leave profits on the table to close sales.


RULE FIVE: PRICE TO INCREASE PROFITS

In order for managers and salespeople to have confidence in their pricing, the prices must be backed up by an efficient infrastructure of products and services. If the company’s services or products are of a higher quality than their competitor’s, then salespeople have the edge in negotiations. If they can sell quality, not just price, then the company is in good shape.


RULE SIX: ADD NEW PRODUCTS AND SERVICES THAT GIVE YOU NEGOTIATING FLEXIBILITY AND GROWTH

To create these kinds of high-impact offerings companies must:

•Create high-value offerings for target customer segments.•Offer low-value flanking products that appeal to price-sensitive customers.•Meet or beat competitive performance on core customer needs.•Build strong fences between high and low-value offerings. •Equip salespeople with the tools and knowledge to have clear discussions with customers to define price-value trade offs.•Give salespeople well defined value levers to modify offering value and price by adding or removing specific features.


RULE SEVEN: FORCE YOUR COMPETITOR TO REACT TO YOUR PRICING

Companies must develop well constructed game plans that focus not on beating out their competitors, but rather on getting them off their backs. This process is designed to ensure that everyone in a company is cooperating and presenting a unified front.

Step 1. Improve Understanding of the Environment: Make sure the people making the decisions have a strong understanding of the current competitive environment.



Step 2. Determine Pricing Strategy: Choose one of three pricing strategies: skim, neutral, or penetration.

Step 3. Develop Communications Policy: This will help avoid price wars. Establish a communications policy that controls what people say to anyone outside the company.



Step 4. Determine What to Say: Determine what the right thing is to announce to the market. Recognize that what the company says may set industry standards.

Step 5. Determine What to Do: Back up what the company says with practices.

Step 6. Monitor Results and Improve the System: Assess what competitors are doing and what is happening inside the organization itself. Monitor what is working and what is not working and improve the system.


RULE EIGHT: BUILD YOUR SELLING BACKBONE: TEACH YOUR SALES FORCE AND MANAGERS TO NEGOTIATE WITH VALUE

Holden and Burton encourage companies to understand the value they create for their customers and how their offerings differ from the competition. Any time a company does not fully understand the value they create, money is left on the table. Holden and Burton offer three initial steps for building backbone in the negotiating process.

Step 1: Admit that there is a problem.

Step 2: Recognize that salespeople and managers need to understand and focus on the value that they provide their customers.


RULE EIGHT: BUILD YOUR SELLING BACKBONE: TEACH YOUR SALES FORCE AND MANAGERS TO NEGOTIATE WITH VALUE

Step 3: Implement programs in the selling organizations to accomplish this move to value on a consistent and systematic basis.

Putting backbone into a sales approach takes planning.

Anticipating the reactions of the customer and the competitor are vital.


RULE NINE: TAKE SIMPLE STEPS TO MOVE FROM COST-PLUS TO VALUE-BASED PRICING

The pricing strategy must hold up well in five areas:

Repeatability: The process produces consistent results.Visibility: The salespeople understand how the prices were decided.Scalability: The pricing policies hold up if the scope of the job is increased. Accountability: The managers are able to measure results and determine accountability for those results.Standardization: The process is used for the majority of the cases that it is designed to handle and the organization sets perimeters for how to deal with exceptions.


RULE TEN: PRICE WITH CONFIDENCE: REMEMBER WHO YOU ARE

If companies set out to apply these ten rules they will begin to develop confidence in their pricing decisions. They can change the conversation with customers from talking about price to talking about value. This process begins with strong senior leadership. The CEO should understand the interconnectivity of all departments in this process and begin to implement metrics that track results from each department.


RULE TEN: PRICE WITH CONFIDENCE: REMEMBER WHO YOU ARE

The process Holden and Burton outline in Pricing with Confidence takes commitment, coordination, and the discipline of multiple individuals. It requires willingness to change and the determination to stick with it. However, if companies can make it real for their team and their customers, they will see results and reap the benefits.


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Pricing With Confidence