Is your product cost competitive?
The most obvious case of this is when your cost is higher than your competitor’s list price. One particular product I came across certainly had this problem. When we had launched it there was no competitor product, but now there was. The 1st red flag was that it had – according to the Product Manager (PM) – 10 Unique Selling Points. This is way too many. Usually the problem is opposite: you don’t have enough or even any USPs. Or you do have them but no-one is able to articulate them succinctly or quantitatively. The 2nd red flag was when it took the PM more than 45 minutes to explain just the first three USPs and we didn’t get beyond the first slide in a 60 slide deck! Clearly the product had been over-specified and over-engineered. The fix in this case was to cut the price by 75% to make it competitive until it could be replaced by a much simpler, lower cost version with “only” 3 USPs. The more challenging ones aren’t so obvious, but I will return to those in a later blog post.
Is there a quantitative value proposition?
A quantitative value proposition needs to be a prerequisite before New Product Introduction (NPI). It should be quantitative and verifiable so that it’s not just a meaningless, fluffy bunny statement. The most successful example I ever came across was one which the CEO could quote with ease to both press and analysts. Not coincidentally, the product launch was also a great success and no-one complained about the pricing: the quantitative value proposition did all the hard work for us. Even though extracting that original value proposition from the PMs had been like trying to get blood out of a stone, after this product launch I never had to ask the PMs from this business unit for a quantitative value proposition. They always had one ready.
Are you competing against yourself?
I noticed that whenever we changed the price of our traditional product, the Product Manager for the new format version of the product would not only be in the meeting without fail, but they would also request a price change too, even if their direct competition hadn’t changed their price. Well, in a way it was good that the new format PMs were paying attention to pricing and that they wanted to maintain a consistent interline. In another way it was bad, because ultimately the easiest way for them to be successful was not to take share away from the competition, as you would hope they would, but to take it from our existing customers of our traditional product. Classic product cannibalization. Sure enough, even though the new format product was #1 in market-share for its segment, over time it didn’t increase the company’s total share of the market.
Does Sales understand the product’s value?
Sometimes new products – particularly those which create a completely new product category – can require a quantum leap in selling skills and effort. Unfortunately, Global Product Groups are often so engrossed in the development of the technology and supply chain activities, that there isn’t an equivalent focus or effort on Go-To-Market or sales readiness in the Sales regions. The Pricing Team will uncover this because the problem will first be escalated as “pricing problem” from the field: “we’re not competitive”. The Pricing Team should assess Sales’s capabilities as they follow-up on these escalations to see if it really is a pricing problem or not.
Are your financial targets realistic and attainable?
Sometimes it is just impossible get management to agree to competitive prices moves despite the fact that the actions adhere to the pricing strategy and make absolute common sense. Management will come up with elaborate and articulate reasons for not taking the price move, or stalling on making a decision. In these cases, the problem is often that the financial targets are just unrealistic and unattainable. Here the Pricing Team can really help management out. They are probably the only ones who can articulate, quantify and explain why – sometimes – financial targets are simply unrealistic and unattainable, and – more importantly – what can be done to remedy the situation. Let’s face it, who else is going to do it? Finance isn’t going to do it. They were the ones who created or contributed to the problem in the first place. And for some reason management tends to take financial targets as if they were inviolable tenets written in stone.
In one situation I was in, Finance hadn’t factored price decreases into their business targets or their financial forecast updates, even though a price war with their main competitor was in progress. When I pointed this out to Finance and had them rectify it, their forecast revenue for the year was reduced by >$1B. After that, getting price action approval became a lot easier, the business was much more competitive, it started to grow again and was easier to manage. The Senior Vice President even kept his job! Unfortunately I could cite a lot more cases like this. This problem is far more common than people realize. This is one reason why Pricing input into the annual target setting process is essential. And the >$1B? It never existed except in someone’s fantasy in Finance.
Cheers from The Pricing Factory!
