Geoffrey James over at BNet was just at the Selling Power 2.0 conference and picked up 6 tips for selling in a downturn.
What caught my eye was #3: "Don’t lower prices. Find new and innovative ways to lower the risk of purchase. Make it an easy entry and a better customer experience."
Great advice. For a fraction of the margin loss of a price drop, what can you do to add value or mitigate risk factors?
When commodity prices surged and governments around the world pumped hundreds of billions of dollars into markets, crippling inflation was a major risk. However, demand is so soft that the Consumer Price Index (CPI) fell a record 1.0% in October. With the critical holiday buying season coming up, a lot of retailers aren't even pretending that they will be limiting discounts. The New York Times notes that Online Sites Are Waging PreHoliday Price Wars, and a lot of them won't survive-- they simply can't make it up in volume.
In both B2C and B2B, this is going to be a tough quarter. While there are no magic bullets, you can get better results with a lot less stress by developing an analytical framework to help you make decisions quantitatively, rather than by "gut." Using your gut to guide pricing decisions while your gut is panicking is probably the worst way to set price, markdowns and discounts. Determine what you need to achieve, and your current plan for getting there. Determine the boundaries for walking away-- whether it's negotiated discounts or markdowns. And have a "3D" plan that lets you move more creatively than just tweaking the price lever. At a simple level, this means unbundling to allow you to serve more of the demand curve without hurting margins or destroying your value proposition. It also means using discounts effectively to exchange value, rather than just giving value away.
Don't do what one online service provider did. They recently sent emails to some of their former customers, with the message "just in case price was the reason you stopped using us, we're going to offer you over 50% off." Not only is this unlikely to get a lot of former customers back in the fold, it's going to ensure that the ones they get back are the price buyers. And it conditions all of their customers and prospects to push back on price. (Incidentally, we didn't stop using them because of price. We actually decided to pay more for a similar service that offered better value.)
Sports Illustrated reports that the AL Champion Tampa Bay Rays are raising ticket prices $1-$5 next year, following their first winning season. Tickets for most games will cost $10-$210, although some games against popular competition will cost more. Nothing succeeds like success, and although I haven't even made it out to the Dell Diamond to catch a AAA Express game in years, I think it's a better deal to pay a bit more to watch a pennant winner than kill time in the bleachers watching the hapless Rays of old.
Customers hate price increases. So many companies keep the price the same, but reduce the amount of product sold. I recently came across an example of this when my wife came from the grocery store with a big container of Tropicana Orange Juice touting a "new, easy-pour" design. As a pricing person, my first thought was "must be a smaller package." Sure enough, they had taken the size from 96 to 89oz. A couple of days later, the LA Times ran "On store shelves, stealthy shrinking of containers keeps prices from rising." While the article mentions a lot of upset consumers, companies often have no good alternatives. Raising prices leads to even more customer ire, and rising costs have made the current package unprofitable. What often irks people is the way companies try to pass along price increases without anyone noticing, rather than just saying "costs are going through the roof, we have to do something."
This technique is most popular in the consumer packaged goods industry, but it can also apply in B2B settings. Rather than trying to force customers into solutions that are beyond their budget, think about what can be unbundled to lower your costs and make your solutions affordable to your customers. The ones who actually value the bundled services will still purchase them. This is different than a consumer product that only comes in fixed sizes.
Do customers only typically use 6 hours of their 10 hour support package? What would happen if you gave them 6 hours at a commensurately lower price? And positioned it as a way to help your customers save money? Sure, you would lose some short term revenue, but then you have a good story when it comes to charging customers who go over their allotment. Of course, it's helpful if you can isolate which factors influence demand for particular customer segments.
We were in Miami last week for the Pricing Society fall conference. This week we're in San Francisco for Dreamforce, the salesforce.com user bash. Almost everyone we talk to is concerned about the economy, and many people are already experiencing a slowdown. (One particularly astute pricing VP has been able to maintain profits in an industry dependent on housing starts, through smarter pricing and better product mix-- great job.)
The great thing about the PPS conference is that you get to interact with hundreds of pricing people. You can share stories, and really get into pricing.
The great thing about Dreamforce is that you get to interact with thousands of people who are ultimately responsible for pricing-- sales and sales support. I've talked before about how pricing and sales often don't see eye-to-eye. Different incentives lead to different views of the "optimal" outcome. But much of the time, both sales and pricing can agree that certain results are not optimal. Deals that are priced so low they force other sales reps to justify their prices. Approval cycles that take forever, especially if the one person who can pull the right data is on vacation. We've found that if the pricing team gives the sales team some useful support, tools, and information, the gap is much closer than both sides imagined.
Naturally, we automate a good chunk of that process with our Deal Manager application. This takes the guesswork out of pricing by providing optimized target prices. If reps need to be more aggressive in a particular circumstance, they can route the deal for approval electronically. Then the approver, who previously had to spend hours fishing through SAP and/or Excel just to gather data, has the relevant information at their fingertips. Price waterfalls, scatter plots based on the customer segment, customer order history, and more. It's a nice fit for Dreamforce, too, because it all plugs right inside salesforce.com. So if you happen to be at Dreamforce, come see us in booth #715 (right be the entrance to the keynote).
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