How do you do pricing?

B2B, Marketing, pricing, Product Management, single target market

Pricing is one of those concepts, that whenever a sales guy will lose a deal, they will blame it on price – our price was too high. For customers, the easiest way to push you away, is to say that your price is too high. In both the situations, the easiest people to blame is the product/marketing folks – “they don’t understand the reality of the market place, they just sit in the office and tell us what to do without understanding what the customer wants”. Pricing is one of the key reasons – marketing and sales don’t see eye to eye.

Just to clarify – its not that I don’t lose cases on price.

My agenda from this post is to help you not waste time with a customer who does not have the ability to value what you offer in return for the price that you charge. Its both marketing and sales’ responsibility to showcase the value to the customer.

That was a loaded statement – so let me break it down – what is the customer’s perception of what you provide and what she should pay for it. The other is, how do you do your pricing.

As a product manager or marketing manager, when you build a pricing for something, you generally take into account the costs involved at your end. Then you add a margin and give that as the price to be charged. This is the easiest way – Cost+Markup

On the other hand, if you were to look at the value / result / outcome, that the customer will get , by using your product or service and then work backwards, you will be able to come to a better argument. If you don’t know the result that you can get for your customer and there are others who can provide almost similar value at a lower price, then the customer will go with your competition.

I have lost a lot of deals where initially the customer didn’t appreciate the value of the kind of trainings we give our people and how they impact the execution of the project and the reason for us being almost double of someone else. But then we had them come back to us, at a much bigger value when they failed to get the project executed and the cost of penalties and reputation, was even bigger for them. Obviously there were also a lot of them where they got the project executed with someone else at a lower price.

The agenda for showing value has to be ours – not the customer’s. You can verify with the customer, during your meetings, if they value what you sell. Don’t ask this question to operational people. I have made that mistake many times. They have no view of what is going on in the mind of the leadership team. Ask it to people in finance or leadership. Those people look at it from the return of investment perspective. If what they value is what you give, then you have an easy task.

On the other hand, if what you have can enhance the value of what they think, they want, then you have to show them, what else is possible and they agree then you can move forward. Generally if you have chosen your Single Target Market well, then this task becomes comparatively easy because most people in that niche will value similar things.

If what you are selling can get them 10 times of the price you are charging, then you have an argument. If you are charging a price of $1500/- and you can show them how the value (reduction in cost or increase in revenue) will be 10 time or worth $15000/- then you can have a good discussion. But if the return on the investment Is only equal or couple of times more than the investment, it is not worth.

Remember the inertia is so high in B2B setups, that they don’t want to go through the whole process of identifying something where the return is minimal.

But you can use this same inertia to your advantage. If the customer has experienced you before and you have delivered on your promise or commitments, then if you are slightly more expensive then the competitors, they will prefer to deal with you because they know you can deliver.

So coming back to the main topic – how can you then do pricing. You can do it better when your argument of value is clearly identified – whether with your case studies or testimonials etc., in case they have not worked with you before. When the customer knows that you CAN deliver , what you promise and she Values what you deliver, then the pricing argument reduces. Doing pricing on a cost plus basis is generally a losing proposition in a highly competitive environment.

Till next time then.

Carpe Diem!!!

Single Target Market and the Life Time Value

B2B, life time value, Marketing, Product Management, single target market

I came across the concept of the Life Time Value from Jay Abraham while reading his book, Getting All You Want from All You Have. It was a very intriguing book name and I couldn’t end up not buying it. Since then I have read it multiple times to find new ideas and ways of thinking.

The Single Target Market concept, I have learnt primarily from Dean Jackson. The advantage of this concept is that you can get to focus all your energies on just one segment of the market at a time and then Dominate it, before moving forward to the next Market.

Each entrepreneur, product manager, marketing manager has multiple markets, that they can focus on and it is counter intuitive to focus on only one.

The reason I keep coming back to discuss on the single target market time and again is because I use it myself and find new applications for it when analyzing different businesses.

A good way to analyse the relative economic values of each market and then choose the one which is the most lucrative. So if you knew what’s the life time value of a customer and you knew that you had the potential to pick up at least 30% of the market then you could take a call on how you could go about investing.

So let’s take a B2B example where the Life Time Value of a customer is say $100000/- at a Gross Margin of 30%. Now let’s assume that there are a total of 1000 potential customers in the segment you have chosen. The bottom 20% will never buy from you. That leaves about 800 prospects. Out of these 800 some are in pain right now, some will get into the pain stages over the next 5 years.

So your potential market yield could be $80million over 5 years or a gross margin of $24million. If you can earn $24 million what would you be willing to spend to get these customers. If on the other hand the other market segment can only do $80000 LTV per customer at a GM of 25% then the potential yield of this market is $64 million at a GM of $16 million. So how much can you now spend to get the $16 million.

So that is the combination to help you choose which is the most promising market for you to enter.

If you have any queries, please raise them in the comments section. I would love to hear them.

Till next time then.

Carpe Diem!!!

P.S: If you are interested in getting a free copy of my “7 point checklist for B2B markets”, you can ask for it, by filling in your details below.

TRUST & FEAR in B2B

B2B, Fear, Marketing, Product Management, Sales, Trust

In every relationship TRUST is a very big factor.

In a B2B situation , its an even bigger issue ,because the person who’s going to be your sponsor for whatever your product or service that you sell, cannot afford to fail.

The fear of failure in B2B environments is even bigger than when you deal with consumers. Any B2B environment whether corporate, government or semi government, all have multiple hierarchies involved.

So the person you deal with can’t afford to fail in front of her peers, in front of her boss and her boss can’t fail in front of her (the boss’) peers. The larger the organization the bigger the problem.

That’s one key reason why there’s so much inertia in making decisions in organizations. This inertia causes large organizations to fail in the long run, which is another story.

For a product manager or marketing manager or sales person, its not about how good your product or service is, its more about how much does the prospect TRUST you. Fear falls only when Trust increases.

If you can’t build the Trust, the prospect will go with the incumbent vendor or technology or partner because then at least people will not directly blame her for failure. There used to be a saying in IT circles ” No CIO got fired for choosing IBM” . IBM was the default standard at one time for information technology. They were more expensive than most, but still picked up business because they were trusted.

As a product or marketing person, your primary responsibility therefore is to figure out, how you can build trust around what you “sell”, that will ease the process of getting traction in the market. If you see some of my earlier posts, I have spoken about how education is one of the best forms of building trust.

Till next time then.

Carpe Diem!!!

The concept of Value – in Services – 2

B2B, Product Management, services, Value, value proposition

In the post yesterday we had seen how services can have different values for different people and its our responsibility as sellers and product managers to create the value differentiation.

If we look at the B2B segment, there’s a very clear difference between how the value is seen if it is helpful in getting revenue or is it about cost.

Anything which can help increase revenue is always more valuable, versus anything that is about cost is always going to be seen as less valuable.

Therefore any proposal on the cost side will take longer to close, until and unless there’s an emergency of some kind, versus a proposal which talks about increasing revenue.

Even when you’re going from the “gate” which brings in the revenue, you have to be able to showcase how your service forms a solution to their overall problem of increasing revenue. As an example,you can’t go in saying I am a content writer and therefore I can increase revenue….you won’t be able to move ahead.

On the other hand if you understand the problem that they have and how content writing can be the solution to their problems then you have a bright road ahead.

Its happened with me many times, where , we created an amazing offering for the cost side and were not able to get it to move with customers because they were already solving the problem in a different way. But we started getting traction the moment we moved towards re-orienting the solution from the revenue side.

This is a key thing to learn for all of us who are in the services business of any kind.

Till next time then.

Carpe Diem!!!