Ask a 12 year old boy: “How hard is it to shoot a free-throw in basketball?” Almost all will say something like, “not very.” If you ask a basketball coach the same question, he will likely tell you it’s very complex to do it right. The mechanics are challenging to learn. It takes a ton of practice.
Now ask a small business owner: “How difficult is pricing?” You’re likely to hear something like, “not very.” Ask a pricing professional the same question and wow.
Pricing excellence requires understanding your products, your competitors products, and how your customer perceive the differences. It requires estimating your customers’ willingness to pay. It requires finding ways to charge different customers different prices. It requires knowing how your customers perceive your entire product portfolio and how to price each piece to maximize overall profit. It requires understanding how your pricing will change as your costs change, as your competitor prices change, as the economy changes. It requires motivating product development to create differentiation, teaching your marketing to communicate that value, and training your salesforce to sell the value. It requires negotiation skills. It requires developing the method to quote prices to your customers. It requires designing processes employees can follow. It requires …
We could continue, but you get the idea.
It is easy to underestimate pricing. But putting sincere effort into understanding pricing for your company is sure to generate additional profits.
Just like shooting a free-throw, pricing looks simple. And just like shooting a free-throw, pricing is easy to do poorly. Don’t let it fool you. Put in some effort.
Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author
photo by rady one