I handle a lot of workshops and mentoring sessions with entrepreneurs and emerging business leaders (mostly entrepreneurs or CEOs) regularly. Almost every interaction, be it sales, marketing, strategy, or finance, invariably brings up the discussion on pricing. Pricing seems to be an important topic for every firm (more so for emerging firms). While effort is made to discuss many approaches and methodologies on pricing, rarely does it lead to better pricing. Fundamentally I think the reason for this failure is our expectation. We want to discuss to arrive at the right price, but from my limited research and consulting so far, price cannot be arrived at, at least not in the real sense of the term.
Price has got to be discovered if it is to be close to what the product / service deserves. The prerequisite for this is a good understanding by the customer of what ‘value’ the product / service proposes! The biggest hurdle to selling your product at the best price it deserves is customers’ not really understanding ‘value proposed’. Why should they take the effort to validate whether ‘value’ is commensurate to the price being demanded? Is it not the responsibility of the entrepreneur to do that? Pricing is not just a calculation or mathematical wizardry. It requires being out on the field and attempting to closely understand how the proposed value translates into real value for the customers.
If entrepreneurs do a good job of mapping ‘value proposed’ to ‘benefits experienced’ then the sales cycle would move from one where the entrepreneur keeps seeking customers to one where entrepreneurs become sought after by customers. This in my opinion has a huge impact on price. Can I turn my business from one where I seek customers to one where customers seek me? If we can, then pricing will yield the greatest ‘gross margin’!
Think about it!