Plucking the goose

“The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.” (Jean-Baptiste Colbert)

Every business has to price what it sells. It is inescapable, yet also deeply misunderstood. This session explains that managers mostly characterise pricing as a tactical afterthought—an exercise in “running the numbers” that follows and is independent of the value-creating activities in the organisation. In fact, pricing decisions are as much about creativity and strategy as they are about dollars and cents. And prices educate and stimulate a market as much as they mark the value of a sale. Ultimately, the problem among managers is one of scope: there are multiple challenges and perspectives that must be recognised and tackled in order to improve this basic business skill. Getting all of it right can reveal unexpected opportunities to capture, communicate and even grow value in the eyes of paying customers.

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The digital revolution comes to pricing

The digital revolution affects just about every part of a business … including how it prices. What is important now is understanding what aspects have changed, how and why they did change and, importantly, what we can do about it tomorrow. This session stresses four mega trends that are disrupting pricing potential: accountability, transparency, fit, and automation. Failure to understand how each of these forces affects your environment virtually guarantees that you are not tapping the full potential of your customers. Importantly, it also signals that you are exposing the organization to serious threats.

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The “ends” game

“The buck stops here.” (Harry Truman)

The ultimate outputs of any business are value for the customer and revenue for itself. However, most organisations do not interact with customers on these terms: they make their money from selling products and services and promise that value will follow. Given today’s technologies and the opportunity for greater accountability, this habit has become a hindrance. Albeit at different speeds, just about every industry one can think of is heading to a point where money flows to proof rather than promises. The important question is whether the organisation sees what is going on and is ready to change. The session describes this shift with examples from sectors as diverse and consequential as healthcare, education, media and automotive. It also provides a roadmap and straightforward advice on how to design a revenue strategy fit for the digital times we live in.

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The price is right!

“There are two fools for every market: one asks for too little, the other for too much.” (Russian proverb)

There are only four ingredients that matter when setting a price: company, cost, competitor and customer. When prompted, most business professionals cite these four “Cs” in a matter of seconds. However, they then struggle to define each input or combine them into a proper decision. The session proposes a simple “two-finger” framework to address this problem. We draw several lessons, but two stand out. First, finding the right price implies striking a balance between looking inside and outside of the organisation for inspiration. Second, the key criterion is a solid understanding of how one’s offering differs from those of competitors in the eyes of the target customer. Indeed, a business that cannot translate value added into dollars and cents is a business without confidence or control.

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$$$elling value to customers

The bitterness of poor quality remains long after the sweetness of low price is forgotten.” (Benjamin Franklin)

At the heart of every sound pricing strategy lie the actions that businesses take to understand and document value to their customers. Indeed, there is truth in the statement “when the value of an offering is clearly understood by both firm and customer, price is seldom a problem.” This session discusses the complications that arise when an organization tries to sell value in a market plagued by stubborn, cynical buyers. Specifically, it preaches to “keep calm and sell value,” a five-step framework that highlights remedies and invites several conclusions. Two stand out. First, a better understanding of what value actually means to customers, and how the business can be true to its promises, gives a sense of calibration and confidence that helps fight off the pressure from clients and competitors. Second, a better process to sell value quickly improves the performance of the firm–and this improvement is enduring.

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Anchors, nudges and charms: the psychology of price

“We want to educate leaders who make a decent profit decently.” (Wallace B. Donham)

Perceptions of value are not only measurable, with some degree of error, but also malleable. Indeed, customer preferences are not as clear, accessible, and stable as economics textbooks predicate. Rather, one’s needs and wants shift across situations and time in ways that researchers in psychology and sociology have been mapping for years, and that business people are only now starting to grasp. A practical means to understand how customers deviate from rationality is to challenge established assumptions at each step of their engagement with a company—at each step of the customer “journey.” This popular lens helps us understand how the nuances of human thought and behaviour (should) influence even the most mechanical of pricing decisions. Importantly, while it is true that organizations can exploit anchors, nudges, and charms to sway people into buying something that perhaps is not in their interest, a more satisfying strategy in the long term is to use these concepts to motivate and empower. This ability is critical when the organization continues to invest in innovation, quality, and differentiation but faces customers who appear disinterested in anything but a lower price.

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It takes three to tango

“There is no victory at bargain basement prices.” (Dwight D. Eisenhower)

How can you stop a costly price war or, better still, avoid one altogether? What does it take to become a price leader? These questions are pertinent in many markets, and the answers lie in understanding that the “fight” unfolds on three fronts. First, part of the blame certainly rests on the actions of the rival, and your task here is to influence behavior by sending unequivocal, credible, and legal signals. However, price is not the weapon of choice unless there are enough customers in the market who demand it. As such, you must also mitigate customer habituation—the “commodity mindset.” Finally, you may be unaware or too proud to see that your actions trigger a response from the rival. This cannot persist. This double session uses different means to present these perspectives on competition and suggests ways to gain the upper hand.

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One size doesn’t fit all

“The worst form of inequality is to try to make unequal things equal.” (Aristotle)

Not all customers are created equal. Certain groups find more satisfaction in a given product than others do. A smart professional spots this and realizes that pushing the same price across the market is inefficient: in some cases it leaves a good chunk of money in the pockets of customers, in other cases it prevents sales that would still be profitable at some lower price. This session explores the fascinating challenge of tailoring prices to individual valuations. One lesson is that proper price discrimination requires some input from customers– the traditional “take-it-or-leave-it” approach is not sufficient because it is the customer who ultimately decides whether something is cheap or otherwise. Second, while there are many forms of discrimination, they fall into one of three buckets: observation, choice, or mechanism. The session presents several examples to explain these labels and suggests an action plan.

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The promotion of things

“A cheap price is a shortcut to being cheated.” (Chinese proverb)

Discounting is often likened to a potent, dangerous drug. Many businesses “give it a try” heeding to external pressure. The immediate bump in sales is rewarding, but the drop that follows stings even more. As time goes by, the concessions get deeper and more frequent to satisfy customers who are increasingly habituated to receiving offers. One interesting aspect is that this downward spiral is mostly predictable, which begs the questions: Are organizations discounting intelligently? Is there a healthier way to entice customers without mortgaging one’s brand? This session provides answers and a useful checklist. First, we have to understand that discounting is not synonymous with “tactics.” Quite the opposite, the strongest sign of a clever campaign is its ability to serve the broader objectives of the business. Second, there are steps that managers can take to ensure that their investments in temporary price concessions are, indeed, investments. The overarching goal is to put an end to the familiar “can’t live with it, can’t live without it” feeling associated with discounting.

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Brand, price and the customer relationship

“If everyone is equal before God, then everyone is equal before price.” (John Wanamaker)

Marketing professionals believe that growing a business implies cultivating brands that inspire a deep, meaningful connection with customers. When it comes to generating revenue, however, organizations seem intent on destroying all the hard work that goes into building a strong brand. Knowing that pricing decisions are effective at spurring all sorts of behaviors and communicating what a business stands for, what it truly thinks of its customers, and how it wants to engage them in a relationship is an important first step to formulating counter measures. The session makes this point salient and suggests practical solutions. The broader message is that, instead of using price in a way that ends up turning customers into adversaries, organizations can use it as a starting point for a collaboration that is empowering and more engaging.

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Asking about price

“If you have to ask how much it costs, you can’t afford it.” (John Pierpont Morgan)

The customer’s perception of value is the ultimate arbiter of price. It needs to be measured carefully. Generally, managers can estimate willingness-to-pay from past or real-time market transactions, or from surveys or experiments that depict hypothetical purchases. All else equal, the manager prefers the first approach because it is consequential—lying to the researcher is costly. But reality forces trade-offs. For example, gathering information on market transactions can burn precious resources, and the data may be noisy. This session provides a critical overview of the manager’s toolbox, discuss the merits of the more popular methods and acknowledge the obstacles that are likely to surface when data are translated into practical insights.

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A better harvest

Take what you want, God said to man, and pay for it.” (Spanish proverb)

What does a lean, mean pricing machine look like? We identify several key considerations and then explore three common doubts. First, the question of structure. Specifically, management needs to decide how far down the company to push responsibility, and how many different job profiles to involve in the process. Clearly, there is no “one-size-fits-all” solution. Second, incentives. What is the best way to compensate those who are responsible for the “health” of the prices we actually achieve in the market? In the session, I present several possible schemes and discuss their strengths and weaknesses. Third, remember that pricing decisions exist at different levels of abstraction. At the highest point, the goal is to gauge the tone of a particular market: significant fluctuations in demand or supply, new regulation, changes in customer sentiment, and so on. At the second level, monetization focuses on the task of capturing value from customers, keeping in mind that differences in valuation are expected and should be exploited. Finally, at the third and most granular level management needs to ensure that the pricing protocol does not result in costly leaks: there needs to be a logical argument for each and every deviation from list prices.

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