I work as a Director of Pricing at a multi-billion dollar corporation, yet I’ve run a start-up and spend a lot of time coaching small businesses. I’ve experienced the differences and they are stark. The two key advantages for small businesses are setting and executing pricing strategy.
Setting Pricing Strategy
Large corporations are like a boulder rolling downhill. It’s almost impossible to change direction. When a company has a pricing strategy in place it is very difficult to change it. Nobody in a large corporation really owns pricing strategy, except maybe the CEO and he’s too busy with much more important issues (ahem). Besides, everyone in a corporation already implemented their role around the existing pricing strategy.
Small companies don’t have this problem. Pricing strategy is almost always determined by the executives, and the executives are more closely involved in the business. They are more likely to see the new strategies that will work.
Take Blockbuster and Netflix. Someone inside Blockbuster must have come up with the idea to rent DVD’s on a monthly subscription before Netflix, but who would they tell? How do you get an audience with the CEO to tell him your great idea? How do you sell your boss so well that he sells his boss as convincingly who then sells his boss as convincingly who then … You get the picture. The idea must have been inside Blockbuster’s walls, but couldn’t percolate to the top in a persuasive enough manner.
Executing Pricing Strategy
Once a new pricing strategy is set, small businesses can just go execute. A few people do most of the work, and they can be redirected. In a large corporation, policies and procedures dictate how one department interacts with another. IT systems must be built or modified. Big change, like a change in pricing strategy, is a herculean task that requires huge change management efforts.
Even if the CEO of Blockbuster liked the idea of renting DVD’s using a monthly fee, it would take at least year to organize the company and get the processes in place to execute this. Pricing strategies are so intimately tied to so many pieces of the business it’s impossible for a large corporation to change quickly.
As a small business owner, you have the ability to quickly make and execute pricing strategies. Of course you don’t want to do this often, but you do want to think hard about how you could gain an advantage over your much larger competition. After all, your competitor will not move quickly. Use your advantage.
Mark Stiving, Ph.D. – Small business pricing expert
Picture by More Good Foundation