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Why You Can’t See Your Biggest Pricing Problems

At the risk of scaring every reader away, let’s start with a pop quiz. Can you spot the pricing problems here:

Outlier Scatter

Easy right? Now, before you get too smug, try to spot the problems here:

Tight Scatter

Looks pretty good, yes? No major problems, right?

Wrong. There’s definitely a problem—and it’s huge. But you can’t see it because it affects the whole distribution:

Shift Scatter

While there are no obvious outliers, every price in the entire distribution is much lower than it should be. Compared to the two outliers in the first chart, the dollar-value of the problem illustrated in the third chart is at least ten-fold.

As we’ve highlighted before, there are a number of things than can have an overall dampening or constraining effect on price realization, from negotiation skills and incentive plans to value communication and product management. And because the influence of these types of things tends to be extremely broad and diffuse, they’re very difficult to recognize.

Simply put, these things don’t stick out as something that’s clearly “off” relative to everything else because they’re causing everything else to be off, too!

So…if these types of problems aren’t likely to be obvious and don’t tend to stand out in the data, how can you know whether or not you’re suffering from them? How do you know if your overall performance is being hampered or constrained by one or more of these wet blankets?

While we can’t be positive without a deeper dive, we can certainly assess the odds or likelihood by just answering some fairly straightforward questions:

  • Does your sales team have revenue-only incentives and the ability to discount in the field? If your answer is “yes” to both parts of this question, you can bet that your margins aren’t what they could be, as salespeople are being incentivized to give up margin to secure revenue.
  • Does your sales team regularly receive training specific to effective negotiation? If you have to answer “no” to this question, the odds are very high that your team is being outmatched in the field and you’re leaving money on the table across the board.
  • Do your sales and marketing messages clearly convey your value relative to the alternatives? If the answer is “no” and your messages are the garden-variety mix of meaningless platitudes and product specs, there’s little doubt that value perceptions and preferences are broadly depressed.
  • Do your product managers employ a value-based approach, grounded in marketing research and competitive analysis? If your answer is “no” to any part of this question, it’s very likely that decisions being made early in the lifecycle are constraining performance in marketplace.

Because their impacts are so pervasive and pernicious, the benefits associated with addressing these types of problems cannot be understated. It’s not easy, of course. But that said, it is a fairly straightforward problem-solving exercise. In fact, many have reported that the hardest part was actually recognizing the presence of the problem in the first place!

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