Pricing is … Part of a Bigger Game

OSU vs UMThere’s always a bigger game, especially when it comes to pricing.

We often think of pricing as putting a price on a product. This is true, but it’s so much bigger.  Here are several examples.

Scope: When we sell one item, we can probably sell more. Think of this as complementary products. By pricing low on the products our buyers use to make the decision, we may be able to win the deal and then make real profit with complementary products.

Scope: When large companies negotiate with large companies there are usually multiple transactions happening at once. Imagine Dell and Intel. Dell buys from Intel. Intel buys from Dell. Dell could also buy AMD. Intel could also buy from Acer. Dell could purchase a multitude of different products from Intel. Intel could do the same. When purchasing for one company is negotiating a part and a price, they almost always make it bigger. More parts. Total spend.

Deal size: Sometimes our customers use more and more product over time. This is true with consumables and when selling parts to manufacturers. The bigger deal is to buy more, commit for a longer period of time. Sometimes buyers will offer to do this to get a better deal. Sometimes sellers will insist on this when buyers ask for discounts.

Deal size: We often see volume discounts. If a buyer is willing to commit to more, they can get a better per unit price. The game is bigger.

Loyalty: Think lifetime value of a customer. If you can gouge them today, you might lose them as a customer in the future. By maintaining loyalty they buy from you over the long term.

Strategic relationships: A purchasing agent might say, “If you give me a better price I’ll help you get designed into the next product.” Similarly, a salesperson might say, “I might be able to get you that discount you need if you can help me get designed into the next product.” Instead of the next product it could be a joint white paper, an introduction to another company, a referral, anything that’s strategic to the seller.

There are many more examples. The point is that it’s almost never simply one product and one price. There’s almost always a bigger game. Can you identify the bigger games you play? The goal is to play the big games as well if not better than you play the small ones.

 

Photo by Ytoyoda