Impatient with stalled sales cycles, protracted lead generation programs, and competitors who bundle services or related products, companies are throwing down pricing too quickly to clinch deals and leaving money on the table as a result.
This may get a few deals closed yet it doesn’t really fix the more fundamental problems that lead to maverick pricing overtaking sales cycles in the first place.
At the center of pricing becoming the competitive weapon of choice is the fact that businesses seem to have lost touch with what really makes value-based pricing work. Being able to anticipate their customers’ needs and develop solutions for them quickly – earning a higher value-based price as a result is what matters most. Not just putting prices into freefall but anticipating and responding with exceptional value is the solution.
What Does Your Company Value More: Trust or Transactions?
Keeping deals going forward and selling is of course the life blood of any company – yet there are way too many companies sacrificing their innate value to just get the next sale. It’s time to stop and think: “Are your pricing strategies setting the expectation you will always bend on price?” or “Will your pricing strategies redefine your channel management programs due to price protection and co-op changes?” These are important questions to confront when price becomes the weapon of choice.
The Truth about Value-Based Pricing: Art Form in Enterprise Software
The enterprise software industry has had the inside track on value-based pricing for some time. Some would argue this industry has turned it into an art form.
I recall discussing value-based pricing with one pricing vendor and their unique contracts with a major PC manufacturer that re-set the value levels every fiscal year. In other words, this PC manufacturer would re-evaluate the contribution of the software vendor yearly and cut them a royalty check based on the value delivered.
The software vendor was indexing online sales and upsells through the customers’ global websites and had been able to index down to each channel they sold through. Value-based pricing measured to the multi-channel level. It was impressive and they could clearly quantify and communicate their value.
A business intelligence (BI) vendor heard about this practice and attempted to migrate their customers off of maintenance pricing to value-based pricing. You can imagine this caused a revolt with customers adopting competitor’s apps that had migration support for this vendor’s data models.
So between these extremes – the foresight of the pricing vendor and their ability to anticipate value delivered over time through multichannel strategies on the one hand – and the BI vendor who tried to play hard ball with its customers and failed. The answer lies in the depth of insight these two companies had into their customers and how they were changing.
Bottom line: Value-based pricing has more to do with knowing your customers’ unmet needs so well you can anticipate them and be right the majority of the time – earning the value they are willing to pay. A sure sign a competitor is out of step with the needs of customers is to see their pricing go into freefall.
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