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

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.

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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