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Which One? or Will I? with Mark Stiving

Which One? or Will I? with Mark Stiving – 050

June 16, 2015 by Kirk Bowman 5 Comments

Mark Stiving has a Ph.D. in Pricing from UC Berkeley. He is the author of Impact Pricing and writes a popular blog PragmaticPricing.com. He is consultant and teacher at Pragmatic Marketing, which helps product managers at Fortune 1000 companies define, build and market great products.

http://traffic.libsyn.com/artofvalue/050-Which-One-or-Will-I.mp3

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What Is the Customer Willing to Pay?

  • What is the most important thing you can share about pricing?
    • Charge what the customer is willing to pay.
    • It has nothing to do with “cost-plus”.
    • Service providers assume they have a cost associated with their time, which is not true.
    • Understand the decision your customer is making right before he buys your product.
      • Am I buying from you or your competition? (Which one?)
      • Will I buy from you or not? (Will I?)
    • When you have competition, you have price relative to the value you offer and the value from other providers.
    • Customers usually are not price sensitive; providers often underestimate their value.
    • The easy way to tell is, once you have won or lost a deal, ask the customer who else they considered.
    • Ask it enough and you will start to be able to tell which type of decision the customer is making.
    • With a “will I” product, create something unique (no competition), and you can capture more value with the price.
    • How do you differentiate yourself so well that your customers do not even look at someone else?
  • What is a telescoping focus on pricing?
    • At some times, you must have a narrow focus on a specific transaction.
    • At the same time, you need to have a broad focus on how you are building and pricing your product portfolio so that you are capturing the value you create.
    • A service professional can take a broader focus by reading Mark's blog and book.
    • As you see and discover different pricing models, ask if they can apply to your world.
    • A company like Netflix makes you wonder if you can do subscription pricing and how?
    • Experiment with the ideas you discover and then once you get comfortable, try it.
    • Slack charges based on how value is delivered to its customers.
    • Companies giving money back to customers will not become a trend.

It is a socialist idea that making profits is a vice; I consider the real vice is making losses.
– Mark Stiving

  • What is the meaning of this quote by Winston Churchill in Chapter 1?
    • A lot of times, people feel uncomfortable making profits, even though that is the whole point of a business.
    • If your goal is not to make a profit, then what is it?
    • Based on a corporate goal, you still might be able to use pricing to help with it.
    • Chick-Fil-A keeps pricing low on purpose as part of a community outreach goal.
    • You have to make a profit to reach toward a goal, even if you are a non-profit.
    • Profit allows you to achieve your purpose.

Pricing Fundamentals

  • How do you determine when is the right time to discuss price with a customer?
    • It depends on what your customer's buying process is.
    • If a customer is looking for a price and cannot find it, they might go to a competitor.
    • If you provide a price too early, you might lose a customer because he doesn't understand the value you provide.
    • Understand the best time to provide a price based on your type of customer.
    • When someone asks about price, the answer is usually a big range until you understand more about the project.
  • What are the three types of value and how do they help set a price?
    • Deal Value
      • “I paid a price lower than I expected to pay.”
      • Set expectations so that people feel they are getting a “deal”.
    • Value in Use
      • How much inherent value do you get out of using something?
      • Will I?
    • Value in Choice
      • How much value do you offer compared to your competition?
      • Which one?
  • What are some of the most important “pricing fundamentals”?
    • Get into your mind that value-based pricing means, “What is a customer willing to pay?”
    • Get rid of the cost-plus thinking.
    • There is a bias toward cost-plus based on our history. (See Jon Lax or Ron Baker.)
    • Our customers may believe we use cost-plus pricing, but it is our job to not use it.
    • We are delivering more value than the price that we charge, but if we raise our prices, it is OK to say the costs increased.
    • If you are asked for a rate, you can say, “I normally charge $500/hour, but after we talk, if I cannot deliver that much value to you, we might bring that rate down.”
    • However, it is much better to not do hourly billing.
    • When you can deliver a flat price, it is saying that you understand this, this is what it is going to take.
    • The fixed-fee process gives you the option to build product portfolios – good, better, best pricing.
    • Your customer has a choice of how much service he wants.
    • If you provide only one choice, the customer is more prone to look at competitors.
    • Most people do not know what they need, so they usually buy the one in the middle.
    • The “good” offering is the lowest price you are willing to accept.
    • The people choosing that option are the most price sensitive.
    • With the better, best options, people have more willingness to pay.

Determining the Customer's Value Price

  • What are the five steps to set a “value” price when you have competition?
    • Who is the individual for whom you are pricing?
    • Know who your competitor is.
    • What is the price of the competitive product?
    • List all of your advantages and all your competitors' advantages.
    • Put a dollar value on each of those advantages, even if you are just guessing.
    • It is how to think about the process of pricing relative to your competition.
    • If you have a unique product, then you do not have to go through these steps.
      • How much value-in-use can you deliver to your customer?
    • How you sell your product can also move you toward “will I”.
    • Service professionals have more “will I” customers as what they deliver is always unique.
  • What is value-based buying?
    • Start thinking about how your customers are making their decisions.
    • People look at the two products, and they start with the difference in price.
    • Then they ask if it is worth it.
    • Replicate the steps your buyers are using when pricing.
  • How can you move beyond the fundamentals to “pricing segmentation”?
    • Start gathering data on every deal you do.
    • What are the characteristics of your customers?
    • What are the characteristics of the transactions?
    • What drives willingness to pay?
    • Collect information on a systematic basis to determine how much people really are willing to pay and then you can use it to price.
    • List of concepts that are top of mind in customer and transaction characteristics:
      • Industry
      • Geography
      • Tpe of business
      • Funding of the project
      • Lead time
      • Volume
      • Weather
      • Time of day
      • Time of year
      • Delivery during 4th quarter
      • Use-it or lose-it budgets
  • What is one of your best stories about creating value for a customer?
    • Working for a semi-conductor firm, they put in a new pricing/quoting system.
    • Buy-in was a challenge and they delivered more than $100 million per year in additional profit.

About Mark Stiving

  • Life-long pricing consultant
  • Blog: PragmaticPricing.com
  • Twitter: @MarkStiving

Filed Under: Episodes

Comments

  1. Kevin D. Monroe (@kevin_monroe) says

    June 30, 2015 at 4:40 am

    Congratulations Kirk on the 50th episode milestone! Your podcasts always provide value and practical insights. What you do with show notes sets the standard for other bloggers.

    Reply
    • Kirk Bowman says

      July 1, 2015 at 6:54 pm

      Thanks Kevin! Most of the credit for the show notes goes to our project manager, Susan.

      Reply
  2. Geneve Hoffman says

    July 19, 2015 at 9:32 am

    Great podcast series Kirk. I esp enjoyed this one with Mark Stiving (the ones with Lee Cockerell & Blair Enns stand out too – all are so good though!). His thoughts on pricing are quite different than what I have heard before – feels like some new ground. Will take me awhile to unpack all this info – eveytime I hear a new podcast I get so much insight for my service based (brand new, by the way!) business. I feel like I am getting an MBA in value pricing. Thanks much.

    Reply
    • Kirk Bowman says

      July 21, 2015 at 9:35 am

      Geneve – Thank you for your feedback and listening to the show. The interview with Mark was very insightful. You may be interested in his book: Impact Pricing

      http://www.amazon.com/Impact-Pricing-Blueprint-Driving-Profits-ebook/dp/B005DIBA4O/

      Reply
      • Geneve Hoffman says

        July 21, 2015 at 10:06 am

        Thanks Kirk!

        Reply

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