Pricing Myopia

Guest Post by Chris Provines from Holden Advisors

In 1960, Theodore Levitt wrote the classic Harvard Business Review article Marketing Myopia.  It’s about how companies miss growth opportunities by taking the wrong perspective.  Levitt provides many examples of missed opportunities caused by companies defining their business too narrowly.  Usually, it is because they see their business as selling products and not solving customer problems.  It’s the failure to see the big picture that leads to wrong decisions and missed opportunities.

Myopia in business is about focusing too narrowly in thinking or decision making.  Pricing professionals in B2B markets can often suffer from a form of myopia.  I call it the “Pricer’s Myopia.”  Honestly, I have to admit that I have, from time to time over the years, suffered from this terrible affliction.  Pricer’s  myopia is a condition where you assume that fixing the company’s pricing strategy, price setting and price management will solve all the pricing problems.  It is also a mistaken belief that what a customer pays equals their “willingness to pay” or how much they “value” your solution.

There’s one big missing piece from this myopic view – the sales force.  If you sell products and solutions through a direct sales force, your ability to capture price often depends in large part on:

• The sales team’s ability to communicate value
• The negotiating skills and ability of each individual salesperson

In the age of the professional procurement organization in many businesses, selling in a B2B environment has pushed and tested the sales team like never before.  Salespeople are often outmatched by highly trained negotiators who have an entire bag of tricks to deploy.  The result is eroding prices, increasing requests for price exceptions, sales force frustration with price levels, and conflicts between pricing and sales.

As a former procurement person, I can tell you firsthand that what a company pays for your product or service is rarely their “willingness to pay” or how much they “value” your offering. Professional procurement has learned how to pay less and get more, and often buy far below their walk away point.  The actual price paid is more a function of the skills of the salesperson to sell value and negotiate.

So the next time you feel Pricer’s Myopia coming on, you need a dose of sales:

• Go and co-travel with your sales team.  Ride with the very best and the not so best salespeople in your company.  Ask a lot of questions, and have some fun.  It’s certainly more fun than sitting at headquarters looking at spreadsheets.  See how the salesperson brings value to the customer.
• Participate in customer negotiations.  Ask to get a copy of the negotiation plan (see if one actually exists!).  Ask the salespeople when was the last time they received negotiations training.
• Go look at the sales tools and collateral provided to the sales team.  Is it value based, or laden with features?  Would you feel confident about defending the company’s value with the tools that are provided?

Don’t miss pricing opportunities by being myopic.  In all my experience, I have always found that good salespeople are usually high achievers and big believers in self-improvement.  Selling is a tough job.  Give sales the help they need so that they can help you in the last mile of price improvement.