The 123’s of Pricing

Posted by Doug on January 17, 2011 · 2 Comments 

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The topic of pricing is a fascinating one to many people – how to come up with a price, and subsequently a value, is a mystery to most people and folks not involved in the process see it as either the work of an all-knowing expert, or a complete stab-in-the-dark.  In fact, a true pricing professional evaluates a plethora of datapoints before making a recommendation (which, in the end, may not be used once the product hits the streets). 

As with any other business analysis, data is key when making pricing decisions.  One doesn’t always get all the necessary data provided to them, and a pricing professional will have to use whatever data are available to him and make them work for the purpose.  But because of this, pricing can become quite a creative process – although data points the pricing manager in the right direction, there are no absolute RIGHT and WRONG here, and only success in the marketplace, or lack thereof, will allow Senior Management to look back and determine if the pricing was in fact “good”.

So how should one new to Pricing proceed?  Are there best practices?  Guidelines?  As far as I’m concerned, yes, there certainly are.  Whether you are launching a new product, or re-introducing an old one, there are certain baseline practices for pricing professionals to follow when determining pricing.  We don’t always have the luxury of extensive testing in the market – sometimes we just need to lay our cards on the table. 

So what is an aspiring pricing professional to do?  Well, it helps to simplify the process a bit, take some of the mystery away from the task.  It should not be clairvoyance, but neither does it need to be rocket science.  By following three simple rules, a pricing professional (or, for that matter, a product manager, a marketing manager or anyone else making customer-facing decisions) can take control over a business situation and make reasonable (and justifiable) determinations.  So, without further ado, here are the 3 SIMPLE RULES FOR PRICING PROFESSIONALS:

1. DO NO HARM.  Now this isn’t quite as vital as for doctors, but they are excellent words to live by.  Taking calculated risks in the marketplace is an important part of the pricing process, as well as learning from successes and failures.  But if it ain’t broke, don’t fix it.  Don’t make changes for the sake of making changes, and if you must, simply MUST throw a price against the wall, it’s best to err too high, rather than too low.  You can always lower your price later on, but it is much harder to raise it.
2. BE PREPARED.  Not just for Scouts anymore, being prepared should be the watchword of any pricing professional.  The more relevant data you have to support your price, the better.  Any business analyses, any market intelligence, any test data not only helps inform your decision, but it helps you support y0ur price to your customers, your shareholders, your auditors, and everyone else hanging over your shoulder.
3. BE YOURSELF.  Take what you learned from your preparation and apply it.  Here is where you may get creative.  You may get aggressive.  You may be very conservative.  It all depends on your strategy – your actual product or service and its position in the market.  If you are a market leader, price like the market leader; if you are a new entrant into a crowded market, use your price to get your foot in the door.  In any case, be wary of your market position – your brand image in the marketplace, your SWOT, your competition – and remain true to yourself.

There is no guaranteed success in the field of pricing, or any aspect of marketing a product or service in the volatile environment that is the global marketplace in 2011.  But by following these three simple rules, a pricing professional can feel secure in their decision-making.  I once had a boss who was proud to say “sometimes it’s more important to be confident than to be right”.   He usually applied it to the heated softball league calls at first base (who let’s a bunch of lawyers call their own game anyhow?) but I have no doubt he used it in his professional decision-making process as well.

Whatever your situation (in future essays, we will discuss some various options for price points, discounts and pricing models; we will also get into some real-world examples for pricing decisions – stay tuned!) remember if you first DO NO HARM, BE PREPARED and BE YOURSELF, you will go a long way in the marketplace.

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• If Your Business Model Is Based On Hoping Your Customers Never Do Math, You’re In Trouble (techdirt.com)
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Filed under Professional · Tagged with 123's of Pricing, Business, Decision making, Dominance (economics), Positioning (marketing), pricing, Product manager, Professional, Professional Pricing Society, SWOT analysis