Carragee Consulting

Last week I facilitated a workshop on Pricing Strategy for 100 year old manufacturing company in Switzerland. It was a really excellent trip and a thought provoking experience on a number of levels.

borne back ceaselessly into the past

Firstly, I had gone through materials a former colleague had developed a few years ago with somewhat dated pricing examples. Remember Razor scooters and Zip Cars? Of course you do, because they are still around, but they were launched in 1999 and originally distributed by the upscale store The Sharper Image. Now they’re sold at Target, Miejer and other big box retailers and the product line has vastly expanded. Zip Car was founded a year later, in 2000 and today there are a number of copycat companies as well as some interesting spinoffs with cabs.

To some extent you do want to present examples that have had time to play out and unfold so that you don’t find yourself highlighting a company that becomes part of a scandal or whose performance tanks just as your finish piling on accolades for them. Building these feature stories into the training material memorializes them in a certain light similar to sponsoring an athlete. You’re actively working to shape their image based on current information and the last thing you want is to find out they’ve been doping, having an affair or cooking their books.

The 1% Windfall

You know what is even more outdating than the Razor scooter example? :  The McKinsey study that is constantly sited to justify investment in pricing projects that shows how a 1% return in realized price would hypothetically stack up against the same percentage improvement in other operational areas.   I tried to find the original piece, but instead found it being re-hashed on the McKinsey site, here: http://www.mckinsey.com/insights/marketing_sales/the_power_of_pricing

From what I can tell, McKinsey’s stated 10x efficacy of pricing actions is only a hypothetical example, rather than a consolidation of outcomes from case studies of pricing projects.  The appeal of the claim is the neat mathematically proof which accompanies it, rather than a compelling anecdote or success story.  One of the course participants in Switzerland asked to see some of the real world results of organizations moving from Cost Plus to Value Based pricing strategies.

There are a lot of issues with trying to provide these real world cases.  Imagine trying to categories each companies pricing in terms of their strategic approach and capability.  There are so many nuances (data availability, executive buy-in, contracting cycles, etc.) you couldn’t break each company down into neat categories to establish a baseline.   Then the changes are incremental and are implemented overtime.  They also occur simultaneously as other parts of the organization and competitive landscape are also changing.  It strikes me time-and-again how unlike a controlled scientific experiment the environment for most business decisions truly is.

With my companies own marketing materials I often wonder how they arrive at some of their figures for client value quantification.  What value does the software itself bring, versus simply a renewed focus on process efficiency, and emphasis and data-driven decision making and the need to hold someone’s feet to the fire to justify the cost of the project.  How you quantify value from these initiatives seems almost entirely subjective, based on what you choose to include/exclude from your calculations.

BiLiONS– Accenture and the Value Based Adds

One company which not only touts, but begins to quantify their value added contribution to their customers is Accenture.

As one of the workshop exercises, I had the group review a number of magazine adds to determine if they were positioned as Feature focused or Value focused.  We discussed how some adds present product features, such as horsepower of a car, while others translated those features into outcomes for a target consumer.  In B2C adds there are any number of outcomes that were worth highlighting, such as Increased Prestige and Beauty and Lifestyle or Happiness Enhancements.  In the B2B adds, the focus was almost exclusively on how a product or service could save a company money or generate more demand: the bottom and the top line.

You can’t price your way out of lack of demand

The last thought I’d like to jot down as a reflection on my experience in the pricing strategy workshop, is that sometime the Pricers just can fix the issues.  Sure, you can re-orient your pricing to reflect consumer value, you can communicate that value more clearly and you can be responsive in passing on cost increases and evaluating the competitive landscape: all important things.  You can even find ways to tease out the services you offer and hold those back from low margin customers.  What you can’t do though it change the nature of your product.  If it’s a commodity, you have to somehow get your organization to accept that its unrealistic to expect a price premium on the product itself.  The best you can do is push for more innovation, and use available to data to indicate which segments are worth addressing.   All the more reason pricing is a strategic part of the organization, rather than a department which can be cordoned off and kept seperate.

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