May 17 by Adele McLean
Recently, I had the opportunity to present at the Apttus Accelerate conference. This was a terrific opportunity to discuss Pricing, what I like to think of as the “Crown Jewel” in the CPQ trilogy because when it’s done correctly, there is an opportunity to driving growth in both revenue and margin. Given this power to affect profits, I was struck by the answer I got when I asked the audience, “How many people in your company are focused on controlling cost vs. controlling price?” A ratio of 10:1 or worse was not uncommon.
The Folly of Price Setting…
If your company is like 1000s of others out there, far fewer people are dedicated to pricing than to costing. We can all quote the adage “1% improvement in price can yield a 10% improvement in profit”, and that is impressive for any company. That is the promise of the longest profit lever – pricing. Yet, we dedicate a small fraction of our resources to the actual practice of pricing.
Even smaller still is the amount of resources dedicated to price getting. We’ve spent billions investing in price setting optimization. We can set prices for the smallest, most well-defined segments. But one often overlooked opportunity today for significant revenue and profit improvement is how to defend that carefully crafted price in the face of tough price negotiations, or what we call price getting.
Vs. Price Getting
For years, procurement has invested in training and gamesmanship all dedicated to one thing – discounts. To counter this imbalance, we need to equip our sales people, and other customer facing teams, with a few best practices for explaining and defending price to realize the great payoff of improved price getting.
The foundation of price getting is being able to understand and defend value. We define value as the impact of your product and service on a customer’s bottom-line versus the competitor’s impact. Most organizations focus on features and benefits and have a very internally focused view of their solution’s value. The key to price getting is to understand your value through the lens of the customer’s financial performance.
Help Reps Grow a Backbone
1) Create Give-Gets – these are price-value trade-offs that enable sales to offer options to enable maximum financial impact to customers.
2) Build backbone in sales and customer facing teams – ensure all customer facing teams are versed in the value you deliver, skilled in collecting new data to support financial impact of your solutions, and habitual about asking good, open-ended questions to uncover new opportunities with customers
3) Gain executive support to defend your value – develop real backbone by developing negotiation strategies that include walking away from a customer bluffing their way to lower prices and ignoring your solution’s value. The organization must be aligned on the customer strategy before the negotiation begins
The result of improving price getting is an improvement in return on sales (ROS), deeper relationships with customers, and most importantly, improved revenues and profits.