For nearly 40 years, the Silver Bridge (so-called for its shiny aluminum paint) carried traffic across the Ohio River between Point Pleasant, West Virginia, and Gallipolis, Ohio. But on December 15, 1967, the bridge collapsed with no warning, leading to the deaths of 46 people.
Later investigation revealed the cause of the disaster. Just one of eyebar chains holding the bridge up had a nearly invisible crack about .1 inch deep. Even though the traffic load on that day was well within the normal limits, that tiny stress fracture was enough to take down the entire bridge.
The Stress Fracture in Pricing
In B2B pricing, hidden assumptions are a lot like that stress fracture. They go unnoticed and seem harmless—until pressure hits.
It doesn’t matter how much time and effort you put into building your models if they are based on one of these incorrect assumptions. Eventually the model will topple, often with very undesirable consequences.
It’s important to note that these fractures don’t result from bad math. And they aren’t intentional. Instead, they creep in because teams are rushed, under-resourced, or overly reliant on we’ve-always-done-it-this-way thinking that hard-codes outdated perspectives.
5 Examples of Pricing Assumptions
So what are these assumptions that function like stress fractures? Here are four of the most common:
- Customer Value Assumptions: Many pricing models are built on unquestioned beliefs about what customers value, how they perceive your offerings, and what drives their willingness to pay. These types of segmentation errors are incredibly common. And they’re also incredibly costly. We cover how to avoid them in Price Segmentation Attributes.
- Competitive Behavior Assumptions: It’s easy to assume competitors behave rationally, and that past moves are indicative of what they’ll do in the future. But competitor strategies can change very quickly. Without a disciplined approach for understanding their motivations, capabilities, and constraints, you might find yourself in a pricing war or offering unnecessary discounts. Learn more in Step-by-Step Competitive Analysis for Strategic Pricing.
- Sales Behavior & Deal Dynamics: We’d all like to think that the sales team will execute our pricing strategy flawlessly. But in the real world, your reps might not adequately understand the rationale for your prices, leading them to communicate ineffectively and offers discounts on a whim. We explain how to head off these behaviors ahead of time in How to Prevent Margin Meltdowns in the Field.
- Data Quality Assumptions: One of the most pervasive—and paralyzing—assumptions in pricing is the belief that if the data isn’t perfectly accurate and complete, then it’s not safe to use. But no dataset is ever pristine. Successful pricing teams must learn how to move forward even when they don’t have all the information they would like to have. We talk about how to do that in Working with ‘Bad’ Pricing Data.
- Market Conditions & Elasticity: Markets are rarely stable. They evolve due to macroeconomic shifts, supply constraints, competitive pressure, and even buyer psychology. It’s easy to assume that your price elasticity is static, but that’s almost never the case. Rather than relying on historical performance, we recommend the steps outlined in Practical Price Sensitivity/
Getting Away from Assumptions
So how do you avoid these stress fractures?
It isn’t about getting better at math or improving your spreadsheets. Instead, you need to replace your outdated beliefs with robust logic informed by data from segmentation, customer value research, competitive intelligence and sales execution analysis.
That takes a lot of work. But in the long run, that’s the only way to prevent your stress fracture assumptions from eventually growing large enough to bring everything crashing down.
13 Unique Price Segmentation Attributes
When you identify meaningful segmentation attributes, you also uncover a source of competitive advantage. This research brief explores a variety of unique price segmentation attributes that companies in the PricingBrew Network have found to be important.
Step-by-Step Competitive Analysis for Strategic Pricing
How to use competitive analysis to identify actionable opportunities to gain strategic advantage, expose competitive gaps, provide differentiation beyond price, and reduce the pressure to discount.
How to Prevent Margin Meltdowns in the Field
When your salespeople adopt better pricing and discounting habits, your strategies can become much more powerful than they were on paper. In this tutorial, learn seven real-world strategies and tactics for getting B2B salespeople to price and discount more effectively.
Working With "Bad" Pricing Data
In B2B, there are so many moving parts that always having a perfectly accurate and complete dataset just isn't very realistic. So we've got to figure out how to do the best we can with the data we've got.
Practical Price Sensitivity
Best practice in elasticity-based price optimization can seem out-of-reach. So are there ways to tap into relative price sensitivities that are easier to implement, yet can still produce solid results?
