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Pricing! Pricing! You Can’t Talk about Pricing!
Jim Mora, a former NFL coach, was made famous in a recent beer commercial that featured his emotional response after a tough loss when a reporter asking him about his team’s chances of making the playoffs. His emotional response is paraphrased in the title of this article, reflecting the response I often hear when I suggest talking to customers about pricing. The title, “Pricing! Pricing! You can’t talk about Pricing!”, reflects the perspective held in many organizations that only bad things can result from any mention of the topic. Another client once told me that “Pricing is a four-letter word and we’ve learned in our company to never use four-letter words when clients are in the room.”
I disagree with that perspective. First of all, pricing is inevitably going to be on the table in all business-to-business relationships, certainly with customers, but also with suppliers and sales channel partners. If the only time that pricing is on the agenda is at contract negotiation time (or when one party chooses to reopen negotiations), it is going to be a discussion involving a clear and unavoidable zero-sum focus. Those are the four-letter word occasions. Even though all zero-sum games eventually yield a winner and a loser, most pricing negotiations are inherently unpleasant events, and especially so for the loser.
Over and over, I’ve communicated to my clients that pricing discussions aren’t going to go away. But firms that take a proactive approach to pricing and that believe that it’s an element of strategy that can make a positive contribution are going to be rewarded. There are many aspects to the approach to pricing that can yield rewards. And one of them is recognizing that having discussions about pricing that are not confrontational, that are not zero-sum discussions between the parties, is one way of setting the table for future pricing discussions that contribute to the success of both organizations.
One of the best conversations we have with customers of our customers is sparked by the question “What does your firm do that enables it to gain a price premium with your customers?” Only in a very few industries does this question yield a response of the nature “What are you talking about? I don’t even understand what you mean by a ‘price premium’.” Far more often, the person with whom we are talking has a response to that question. And, more often than not, that answer can help a supplier to figure out what they can do in order to create shared successes in which they can participate.
One firm that we worked with recently had a significant volume of sales through the Internet. When we interviewed their customers about what they liked, what they disliked, and what they hoped for in the future, three of the top ten themes were surprises to our client. Gaining a strong understanding of customer priorities is the route to success in value creation. And, for this firm, responding to those previously-unknown needs provided the basis for a stronger business position, one that was reflected in prices as well as volume.
Another reason for asking that question builds from the fact that not every price challenge is a real threat. There are elite segments in just about every market. Many of your customers want to buy a product they see as superior or one where they have a strong level of confidence in the brand or because they want the associated top-of-the-line service. If they tell you what is important to their own pricing strategy, and your products and services are an important factor along those dimensions, that is a strong indicator that factors other than price are critical to your customer. Remembering – and, more importantly, reinforcing – the non-price advantages that won your firm business in the first place can allow you to avoid unnecessary participation in the vicious cycle of price-based competition.
It is only realistic to recognize that pricing can be a confrontational topic between any business and its customers. But at the same time, it’s important to recognize that a successful pricing strategy can yield a dramatic improvement on the bottom line, rewarding the firm’s shareholders. It is not a subject to be avoided. Information about customer’s perspectives on pricing can help to define strategies that create value for customers and yield rewards for your own shareholders. And insights about what is the source of pricing success for customers can be one ingredient in deciding whether pricing pressures are real or not. Managed carefully, you can talk about pricing and come out a winner for having done so.
Author: George F. Brown, Jr.