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The World’s Dumbest Pricing Decision

If you’re like most pricing practitioners, you’ve probably witnessed some pretty mind-boggling pricing moves over the years. Tactics that made absolutely no sense whatsoever. Strategies that had no basis in marketplace reality. Pricing and discounting decisions that wouldn’t pass muster at a garage sale, much less an established business.

And let’s not forget the best parts—i.e. the rationalizations and explanations for why these silly things made sense in the first place. Isn’t it hilarious what people often come up with to justify the really, really bad decisions?

But as bad as they may be, these head-shakers are often highly instructive. They can provide a lot of insight into the organizational dynamics and personal behaviors we have to be prepared to deal with. And besides, knowing what not to do…and why…can keep us from falling into the same traps.

To that end, we’ve been gathering examples of “silly pricing” from the PricingBrew community. If you haven’t provided your examples yet, please use this simple form to do so:

PricingBrew Poll: Examples of Silly Pricing in B2B

Venting about the silly things we’ve witnessed in the past is sooooo cathartic, I just can’t resist getting in on the action. So here’s the dumbest pricing decision I’ve ever witnessed:

A VP of Sales at a large manufacturer executed a contract to directly supply a top retail chain. At first glance, this seemed like a big win worth tens of millions in revenue over the three-year term of the agreement, and cutting out the middleman to boot!

Upon closer examination, however, the terms of the contract stipulated that the retailer would receive a flat discount of 30% off of the manufacturer’s Distributor Price List. Of course, the company’s Distributor Price List was already heavily discounted, with margins averaging 20% at best.

The justification? The rationalization? Wait for it….

Look guys…with 20% margins, I know this 30% discount seems bad. But just wait until the volume ramps. Then you’ll see that this is good business.

A gradeschooler could easily see that 30% will always be greater than 20%. But it took a finance person, walking through volume projections for an hour, to finally get this VP to acknowledge that this contract would never—and could never—be profitable, at any volume level.

Silly? Sure. But “sad” is probably the more accurate description. Boy, that felt good! Your turn…

PricingBrew Poll: Examples of Silly Pricing in B2B

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