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How Sales Can Wield Its Most Effective Weapon: Pricing | Frank Cespedes

Frank Cespedes, Senior Lecturer at Harvard Business School and author of Aligning Strategy and Sales

Pricing builds or destroys value faster than almost any other business action. Warren Buffet said it well: “The single most important decision in evaluating a business is pricing power…And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

When you lose a deal, how many times have your salespeople said, “Our price is too high”? Few customers wake up wanting to pay a higher price. But most seek value, and it is the responsibility of the sales team to frame and deliver the value proposition, including price.

Some firms compete successfully on the basis of cost and their ability to make money at low prices. But in any industry there can be only one lowest-cost competitor. Most companies target customers willing to pay higher prices for products that deliver a performance advantage. Here are two core capabilities that sales managers at those companies, and the executives evaluating sales results, must cultivate:

  1. Determine customer value and costs.

Effective pricing requires understanding the value to the customer versus the firm’s cost to serve customers, and how both vary across segments. In most firms, the best understanding of customer value is held by a combination of people in product, sales, and service. Meanwhile, costs are managed in procurement, operations, and finance. How often in your firm do these people come together to discuss value, costs, and pricing in a disciplined way? Great pricers make that dialogue part of the culture, keeping the information flows current and fact-based.

Consider the example of a company whose business relies on big-project deals. It upgraded its traditional sales “win-loss analysis” to a cross-functional after-action review. One result was more precision about target customers, deployment and staffing of sales calls, and the true causes of wins and losses. As one of the company’s (non-sales) senior executives discovered, “It turns out that high price is what customers tell you even when the truth is that they won’t buy from you for other reasons.”

These meetings can also result in ongoing product and value proposition improvements, as well as an understanding of how value varies across customer types. Information shared via virtual user groups like Marketo’s Marketing Nation, Oracle’s Topliners, or the Salesforce Success Community allows customers to research products, prices, and usage experience before ever speaking with salespeople. When different customers derive different value from the same product (as in many software and data-analytics categories), then one price across these groups almost certainly means that some customers are, in effect, subsidizing others. Sooner or later, competitors or a supply-chain consultant or a good CFO will tell them. Conversely, these differences often only become apparent in account reviews — a core responsibility of sales leaders.

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How Sales Can Wield Its Most Effective Weapon: Pricing – Frank Cespedes.