OnDemand WTP Pricing Research

Discussion: Your sales force is the most important part of your pricing strategy

The world is full of amazing people with amazing abilities to develop incredible products and still you will often see that some of these products are not really successful when they are launched in the market.

One example I saw about 20 years ago, was a building services product, which was developed to save energy. The company developing it had chosen to focus on sustainability and electricity savings and the product they developed was unique in that sense. It was top quality and had an expected life time of 15 years. Although it was launched at a price point 50% above a conventional comparable product, it would pay itself back in less than 5 years in electricity savings. It had all kinds of ‘bells and whistles’ on it but surprisingly it was never really the sales success it deserved to be. Some said it was because the market place was not ready for the technology yet but I don’t really buy into that. The product was amazing, so it was not because of the product. Was it because it was launched at a price, which was too high or was is the brand? No, I don’t think that was reasons either. So, where did it all go wrong and how could the company have done it differently?

I’ll try to illustrate it by using Porter’s value chain as starting point.

When you start developing a new product, you have to ask yourself: “What value will this product add to the end-user/customer”? I also believe that you have to constantly think about value in every single component of the value chain. You could call it “value management”. Everything you do internally in your company has to come out at the other end as a value to the customer. Some examples could be the outbound logistics and the distribution channel chosen. The supply chain people have to ask themselves: “why are we choosing to supply the market this way – what value will it bring to our customers”? The operations team needs to ask themselves: “if we choose an alternative way to produce the product, what value does that bring to the customer”? Every decision taken internally before a product launch have to end up in adding value to the customer.

In the specific case of the building services product everything was actually carried out with focus on the value the product would deliver to the customer and with focus on the basics of value based pricing, which starts with the customer in focus. However, there were two components of the value chain where it wasn’t done properly.

Top Comments

Christopher Smith, MBA

In the case of this product, a fundamental question beyond if it created value should have been what position the customers were in making this kind of investment? A five-year investment that generates no sales revenue can crater a company because of lost sales share in the marketplace. Timing is also key. In a market of stagnant to declining growth and having high market share, a cost-saving initiative will improve your profitability and, in turn, enable for better positioning when the market improves or to be defensive when another competitor enters/makes a move in the marketplace. Maybe the sales team was selling to the wrong decision makers in the customer organization? In a large corporation with sales, finance, and operations divisions, selling to the operations division will drive what’s in it for them for this product. A pricing strategy that would reduce the up-front investment cost to now across the first five years would entice customers to feel more comfortable in shifting capital. Would it also be feasible to leave an escape clause for the customer to give more peace of mind? In this case, it might have made a difference too. Still, the lesson learned is to always know your customer and their needs and wants first. Servant leaders are also good at this. In a leadership role, knowing the needs and obstacles facing your sales team will enable you to either get them engaged, remove obstacles, or both!

The customer segmentation is a really essential part of the process, Christopher. Analyzing the willingness to pay and finding the right segments to target is the core here. No need to target price buyers with a high end product. As you mention, once the segments are established it is equally important to target the decision makers. In this case the investment was relatively affordable in the range of a couple of thousand dollars and not a million dollar investment. The whole challenge was analyzed and today similar energy effective products are required by law in the EU but the company was ahead of it – perhaps even too far ahead, so it took a while for it to gain traction in the market but once it did, it really took off big time.

 

It is really simple. Value is defined by what someone is willing to pay for it, and that is at least 60% consumer behavior, which means it is largely human behavior. And humans are not famous for being rational actors, are they…

 

It’s common to see that the finger of blame quickly points at price for the individual deal that is lost, and then sales when there is a wider under performance. But there is a bigger question not captured here. Product cycles are speeding up, new technology is being introduced more often and applied in ways and at speed that perhaps isn’t widely recognised. Over christmas dinner I heard about the latest application of 3D printing in the design and building of electricity transmission infrastructure… really interesting stuff is going on. The challenge for product development teams is to not only tap into the needs of the customers, but to do it regularly, and be able to respond flexibly and quickly….and often, before the customer even realises they can have it. To me this also implies having the courage (and the budgeting processes ) to make mistakes, put beta versions out there, and continually refine and improve . Or, be prepared to get left behind.

 
More here:

Your sales force is the most important part of your pricing strategy.

Post a Comment

WP-SpamFree by Pole Position Marketing