Do you have a pricing problem?

Guest post by Stephan Liozu

For the past few months, and since leaving the corporate world, I have had the privilege to work with a few companies as a consultant, as a speaker or as a trainer. Many companies called me initially to discuss their “pricing problems”. It seemed that the focus had switched to pricing when in fact they had not done a proper diagnostic of their internal gaps. The reality of their situation was that they did have a pricing problem. Because pricing excellence is a journey and not a destination, every organization might be faced with pricing problems of different nature and different intensity.

But the reality also was that, for these companies, the pricing problems were a symptom of a greater internal problem. So trying to resolve their pricing problems might yield some positive short term developments but might not solve their internal structural issues.

In the figure above, I list of few of these structural business problems. I will only focus on three critical ones:

1. Segmentation: Perhaps the most common marketing problem is a total lack of segmentation based on user needs. Without segmentation, these firms cannot separate various types of buyers and they try to be everything for everyone. The end results of this problem is customers’ confusion with pricing, severe pricing overlap across segments, and profit leakages when customers get things they do not value and are not willing to pay for. Segmentation is one of first steps of the value-based pricing methodology. It is also the fundamental step of a sound marketing strategy.
2. Business model: Another significant structural problem leading to pricing erosion is the lack of a sound and differentiated business model. I was recently in a customer’s executive suite meeting where the pricing discussion led to some serious exchanges on the organization’s business model. Let me be clear. If the business model is broken, there is a high chance that the pricing models are also broken. Therefore before working on their pricing models, business leaders should figure out what their business model is, how strong it is and what is needed to reinforce it. The same could be said about a corporate strategy that is not obsolete, internally oriented and not delivering value to customers. There is no pricing program or action that will solve this situation.
3. Strategic alignment: This structural problem occurs when teams work in silos with different goal systems, different compensation structures, and different perceptions of what the business model is. This lack of alignment generally leads to internal dysfunctionalities. The sales force for example will not deploy the marketing programs while cost accountants will focus on producing report that no one reads. Strategic alignment starts at the top. If pricing and value are priories are the top, everything cascades down the organization.

I could equally have focused on the lack of innovation, the lack of differentiation, and the lack of attention to customer value. In order for pricing programs and strategies to be successful, they have to be aligned with a sound business model and a strong corporate strategy which aim at creating and delivering customer value. Then pricing can become an effective weapon to capture that value. When the business model and the corporate strategy are broken, pricing cannot do miracles and be considered a silver bullet to save the day. So I start customer engagements by having that discussion with the top executives. Generally, it leads to excellent dialogs on business model innovation and value proposition.

Be bold. Join the pricing revolution! 

Stephan Liozu (www.stephanliozu.com) is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his PhD in Management from Case Western Reserve University and can be reached at sliozu@case.edu.