As some of my friends and family members can attest, the tripwire on my “rant generator” has become a bit less sensitive as I’ve gotten older…and presumably, more mature. The whole maturity thing is questionable at best, for sure. But these days, I can’t deny that something does indeed have to hit my tripwire quite a few more times to set me off on a public rant.
So…the first few times I heard about this, I let it go. But hearing about it two more times in just the last month? Well…my tripwire has reached the breaking point.
A number of Journal subscribers have inquired about a particular pricing strategy being employed by their product managers. In some cases, they’re asking about the validity and efficacy of the approach itself. In other cases, they’re asking for our advice about how best to deal with it. In still other cases, subscribers just want to vent their frustrations and do a little ranting of their own.
In a nutshell, this pricing strategy…if we can even call it that…is really simple:
The product manager uses cost to set a blanket floor or minimum price. Then, they throw the product over the fence to Sales. From there, they just expect that Sales will negotiate higher prices wherever they can. Easy peasy.
Now, the fact that this approach exists is not what bothers me. After all, this approach has been around for more than a hundred years. Many companies have been doing this for decades. In fact, this is the default approach…for people who don’t know any better.
And that’s what really gets my rant generator revved up…
You see, many of these product managers do actually know better. But when pressed by the pricing people, they’ll often justify this simplistic approach as being “much more efficient” than doing all the legwork to understand differential value perceptions, identify the various segments that exist, develop value-aligned prices and discounting structures, etc. They’ll say something like, “Yeah, all that stuff might make a difference, but probably not enough to offset the time and effort involved.”
Or sometimes…and boy, this really sets me off…they’ll even go so far as to suggest that this lame approach to pricing is actually superior to doing all of that value-based legwork and development. With a straight face, they’ll actually say that their rudimentary approach is better “because it gives salespeople the ultimate freedom to discover the perfect prices and exactly match each customer’s willingness-to-pay, in real time.”
O…M…G! That, my friends, is the sound of Bravo Sierra being piled really high in an effort to obscure laziness and corner-cutting.
I know that seems harsh…even for one of my rants. But the only legitimate defense for employing this simplistic pricing approach is ignorance. So, when a product manager actually knows about strategies that are more value-oriented and yet they still choose this cost-plus-fingers-crossed route, it’s impossible to draw any other conclusion but that they just don’t want to put in the effort!
I guess what I’m trying to say is that you shouldn’t fall for clever rationalizations and justifications around weak pricing practices in product management. Whether it’s out of ignorance or just plain laziness, there’s no excuse for it. It’s not good. It’s costing your company a lot of money. And something better needs to take its place.
So keep pushing. Teach them if you have to. Call them on their BS where you need to. And if there’s really no other way, do the legwork yourself…and take all the credit for the gains that come as a result.
PS: Let me say for the record that, no, I’m not really a ranting lunatic. And yes, I realize that’s exactly what a ranting lunatic would say 🙂
The Fundamentals of Value-Based Pricing
Value-based pricing is like any other business practice in that most of the power comes from mastering the fundamentals. In this on-demand webinar, learn the core concepts and essential processes that generate the most bang for the buck.
Better Product Management for Better Pricing
In this on-demand webinar, learn how leading pricing teams are influencing the pre-market decisions that can increase pricing pressure and limit the prices you can command in the market.
How to Crater a Market with Cost-Plus Pricing
For one large manufacturer, cost-plus pricing was tantamount to malpractice. In this case study, learn how the lack of strategic pricing capability reduced the value of an entire market by over $1 billion.
