Effective pricing is not limited to the setting of pricing, however innovative that might be. It also involves making sure that your sales force can implement it in the face of pressure from buyers.

 In many competitive business to business service categories, salesmen often come back reporting that sales have not been won because a competitor came in with a lower price. As a result many companies will reduce prices to win business only to find that competitors again lower their prices and the cycle goes on until both firms have reached such a poor level of profitability that they can no longer lower prices further.

 This can even happen to firms whose services or products actually offer some advantages versus their competitors. Some of the reasons for this include:
a)     Salespeople not being trained on how to clarify the customer’s needs before developing a proposal and pricing
b)     Salespeople not highlighting the advantages that their brand has to offer, not just in terms of simple functionality but going beyond that to show the possible impact on the customer’s business; in other words, not selling based on the value offered
c)      Salespeople not even being aware of all the advantages that their brand has to offer and how they can impact on a customer’s business.
 So they allow the buyer to aggressively belittle the value of their advantages and keep the negotiation limited to price.
 Clarifying the customer’s needs can help the seller determine what combination of services should be covered by the price offered. Different customers often have different needs, eg some are more sensitive to delays and require more reliability while others are not as sensitive to those problems and can live with a lower standard of performance. Pricing can be different for customers who value different things because the cost of serving them will be different. Each of these segments of buyers can be priced differently.
Often it can be difficult trying to establish what a customer needs because they won’t tell you very much so observation by the salesman of the operations of the buyer can help clarify. For example, a customer who claims that only price matters but who has a business that is sensitive to delays is not likely to be telling the whole truth; they may actually be able to take a higher price in exchange for more reliability. On the other hand, observation might show that the office or factory premises of a customer are not being cared for very well, which may indicate that this customer is really a price buyer.

 Here it is helpful to recall how Fedex started out. It charged high prices for providing very reliable service because setting up the infrastructure and organization which made sure that packages did in fact get there, “absolutely, positively overnight” as promised, did cost money. Later, a competitor UPS came in with much lower prices but failed to dislodge Fedex because they were not able to match the reliability of Fedex, which was exactly what its customers were looking for and paying for. Fedex’s customer segment was different from UPS.

 If a company wants to serve both price sensitive and value added segments, it will be helpful to have a range of services which can bundled or unbundled as the buyer segment requires.

 And if its services cannot be unbundled to suit a lower price, then the firm should think hard about whether it really wants to serve that customer by dropping its price because it is unlikely that competitors will roll over and play dead immediately.

 Some proposals also cover pricing and list some or all of the strong features of a firm but do not discuss the implications of the strong features to the client’s business. Instead they leave it instead to the buyer to imagine the implications. But buyers can easily miss the meaning of certain features and fail to fully appreciate the value being offered. So business may not be won not because the price was too high but because the buyer did not grasp the value being offered.

Benedicto “Poch” Cid is the Chief Brand Adviser of Mansmith and Fielders, Inc. (www.mansmith.net), the leading marketing and sales training company in the Philippines. He will be conducting the seminar entitled the 5th Data-Driven Marketing on February 20-21, 2014.  For inquiries, please email info@mansmith.net, call (+63-2) 584-5858 /412-0034 or text (63) 918-81-168-88. You can also send your marketing, sales and strategy questions to mentors@mansmith.net.