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Pricing Myths: Alive and Kicking!

May 13, 2012

Posted by Stephan Liozu

Posted in Presales, Pricing, Quantify Customer Value, Why LeveragePoint?

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Guest Post by Stephan Liozu

For the past ten years, practitioner’s published literature have highlighted the existence of numerous pricing myths. Many of them have disappeared with the modernization and professionalization of the pricing function in firms. Pricing has come a long way with the emergence of pricing software, modern pricing strategies and many excellent pricing books. Marketers and pricers learn and apply these new tools and concepts and myths slowly disappear. However new myths pop up in conversations and pricing practice and we thought it might a good topic of a discussion on the Professional Pricing Society Linked In group. Here are ten of the latest and most pernicious pricing myths representing the voice of some pricing professionals.

“Myth: premium pricing is value-based pricing. Many firms based their pricing at competition+% estimating that they can get a premium for their value. They claim to be doing value-based pricing. Premium pricing is not value-based. It is a competition-based pricing strategy that does not measure and fully capture customer value.” CEO of mid-sized manufacturing company.

“Myth: the pricing team is the “sales prevention dept”. The reality is: pricers try to help capture sales opportunities, as well as maximize profits!” Pricing Practitioner with a Long Career in Pricing Management and Consulting.

“Myth: pricing optimization and value-based pricing depend on heavy involvement with consultants. Most companies can implement SaaS pricing software using their own people with minimal support from external parties. One needs to leverage and organize the knowledge you already have at product development, marketing, operations, finance and especially sales.” CEO of a Value-based Pricing Software Firm.

“Myth: I have to fix my price-delivery processes before I can improve my price-point quality. This is like saying, “I have to fix my plumbing leaks before I remove the lead in the water…”. Nonsense — bad prices are toxic to your business and can/should be resolved right away. The profit lifts that come from fixing your price-point quality are a great source of funding for that eventual price-delivery project, by the way.” Director of Pricing Excellence at a Pricing Optimization Software Firm.

“Myth: price elasticity and demand curves can be easily applied to B2B markets. Fact: buying process is sufficiently complex, customer experience/ user sophistication levels with B2B products can vary greatly and downstream customer derived demand exists such that applying these concepts is problematic.” Vice President of Pricing & Analytics at a SaaS Clinical Development Solution.

“Myth: customer willingness to pay (WTP) should drive pricing. Customers don’t know what’s the right price is. Rather the focus should be on how to make customer believe (or willing to pay) the price you are demanding.” Pricing Thought Leader.

“Myth: what I am doing with spreadsheets and pricing databases is good enough. Most companies are not motivated to do anything because they think they already have their markets figured out as well as they can…concepts like value-based pricing, pricing optimization or improving price execution escape them. How many of us have spent hours convincing our prospects, customers, or internal teams that we can do pricing better than it is being done right now?” Marketing Executive in a Pricing Software Optimization Firm.

“Myth: in pricing, you need copious amounts of “good” data. This is not the case! With small amounts of data and value based approaches any company can get started today. The hardest part for them is the leap of faith into a pricing initiative”. CEO and Founder Pricing Consultancy.

“Myth: “the market became a commodity market. The customer tells us the price. We can not increase our price”. Have you never heard these sentences? Of course, few customers wake up wanting to pay a higher price but most do seek value. It’s the firm’s responsibility to frame and deliver the value proposition and the pricing mechanism to capture this value.” – Financial Controller in Charge of Pricing for a Large European Service Firm.

“Myth: pricing and conditions should be complex. Pricing is all about making the complex simple. If your prices are not fair, transparent and easy to communicate, you don’t have a pricing strategy. Pricing research must allow you to reduce complexity and gain in understanding of common behaviors.” Pricing Expert and Marketing Professor.

These represent a snapshot of all entries that were posted on the Professional Pricing Society Linked In group. We received over fifty entries. Many of them highlighted myths that were well known to the pricing profession and reported many times in pricing publications. We decided to select ten of them that were related to technology, data and modern pricing approaches. Pricing is evolving rapidly with an increase use of software and the emergence of pricing analytics from “big” data. We hope that by publicizing these myths, we can generate conversation at the profession level. Join the conversation!

Stephan Liozu is President & CEO of Ardex America Inc (www.ardexamericas.com), an innovative and high-performance building-materials company located in Pittsburgh, PA. He is also a PhD candidate in Management at Case Western Reserve University and can be reached at sliozu@case.edu.

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