Raise Price to Increase Volume? The PPS Spring Conference and Pricing Strategy

by | May 20, 2016 | Pricing

This month the Professional Pricing Society (PPS) hosted their 27th Spring Conference in Chicago. I have attended many PPS conferences over the years and it’s always a great opportunity to re-connect with customers and colleagues. Kevin Mitchell’s team always does a stellar job of organizing a smooth conference and making everyone feel welcome. Mark Burton remarked in his keynote that going to a PPS conference feels like a homecoming – I totally agree.

It’s been about two years since I last attended so I was curious about what was new in the world of pricing. To many outside of this world, pricing tends to have a dry, boring reputation. It’s a domain heavily influenced by classic economic theory and heavy-duty statistical analysis. This is to say that when fresh and exciting ideas emerge, they really get noticed. So here are my personal take-aways (in no particular order) from the conference.

  • Never trust an economist. My favorite was the opening key note by Rory Sutherland from the legendary advertising firm Ogilvy & Mather. Rory shared many fascinating topics which I can’t do justice in summarizing – but one notable idea (picked up by later presenters) was this “elephant and rider” metaphor for the brain. The elephant represents the subconscious mind whereas the rider represents the rational conscious. However, in reality the rider is delusional because he or she exerts only minimal control over where the elephant is going. Take for example how the brain reacts to a price decrease. According to economists, the rational rider sees it as a welcomed bargain; the elephant interprets it as a confusing and even alarming signal, i.e., “where’s the catch.” In a later key note, Paul Hunt expanded on this point, showing both b2c and b2b examples of how smarter, higher prices led to more volume. As I thought about it, examples came to mind. Higher Price, Higher Volume is not the world of economic demand curves. The real question, though, is how companies execute to achieve this outcome. In my experience, they only get Higher Price AND Higher Volume by driving customers toward the realization that their product has Higher Value. Maybe the elephant is rational after all.
  • Don’t trust pricing analyst geeks, either. Admittedly, this theme strikes me as a little odd because the pricing space is dominated with price optimization and analytics solutions. These activities occupy a large portion of corporate pricing budgets, not to mention the PPS exhibitor’s hall. Yet, I heard explicit anti-quant messages in some presentations. Mark Burton of KPMG described the short-comings of a small “p” focus: “we (pricing people) are missing more than half the picture [it’s more about] what our customers value and how they behave.” In other words, analytics alone is too narrow a focus; pricing professionals need a broader strategic perspective to gain credibility with c-suite executives. I couldn’t agree more. Pricing analytics are only part of the puzzle. Tom Nagle has made the point very clearly: there is a difference between price management and value management; great companies need both. Rory Sutherland put it more bluntly, he warned against being seduced by narrow self-interest: “faux rationality in business is not about improving business but about protecting jobs.” Ouch.
  • Make room for CPQ. The biggest change I noticed at PPS versus past years was the large presence of CPQ (configure price quote) process/solutions. CPQ had its own dedicated track of break-out sessions and there were numerous new and re-positioned solution providers. It even had its own key note. Omer Minkara from Aberdeen discussed CPQ as a value-based selling solution. He made the case for how CPQ can improve sales performance by responding to customers more quickly and avoiding deal “slippage.” Speed is great and CPQ definitely helps with pricing quotes. It is important to think about how the value is communicated as well. Claudia Galea from Boeing (who did an excellent break-out session) said it best: “Sales needs to understand the value of what they are selling.”
  • We have a long way to go with new products. In his keynote, Georg Tacke of Simon-Kucher cited record levels of R&D investment worldwide, yet high levels of product failure (only 25% succeed). He described four categories of product flops. His new book, Monetizing Innovation – How Smart Companies Design the Product around the Price is certainly worth a look. My favorite chapter in that book is titled, “The Innovation Won’t Speak for Itself: You Must Communicate the Value.” Amen. The best companies innovate to drive customer value. The best teams price to capture that value. The best product launches market and sell to realize that value.

To my fellow PPS Conference attendees: please share your best learning from the conference.

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