Why does everyone like the product except for the Pricing Team?
Sometimes you get these products that everyone loves. Except for the Pricing Team. A good example of this that I came across was a small form factor version of a best-selling product. The product team loved it. Their product group management loved it. Their business unit management team loved it. Corporate loved it. Journalists and analysts loved it. The product was often physically demo’d – perhaps because it was so small – so it was also physically very visible and very tangible.
But the Pricing Team couldn’t see why anyone would buy it. It made more sense from a customer’s perspective just to buy the original, bigger and only slightly more expensive but ultimately much better value for money model. We couldn’t get the pricing to support the value proposition and still make money. The product flopped. Sometimes it’s a good idea to ask the Pricing Team if they like the product or not, before you buy all the material to build it ….
Is anyone over-viewing the new product portfolio?
As resources get cut, portfolio management often gets a disproportionately high hit. As a result, issues often only arise way later in the new product introduction process than they should. Sometimes it’s only when the Pricing Team starts to develop the final inter-line and intra-line pricing just prior to launch (because it’s only then that they get accurate data to work on).
The best bad example I came across was one launch where each server platform PM had taken a very subjective and unique approach to selecting the processors that would be available on their platform. Each one had been influenced by their demand planner and the processor pricing roadmap in different ways. No two server platforms had the same processor selection. The PM for the server platform which was planned to have the lowest volume, had selected all the processors. Conversely the two servers which had the highest volume and could have justified more processors – you guessed it – had the fewest. Some models had their discontinuation announced as soon as they were launched, others models had to be rushed into production in the following product launch.
Is there a Business or Go-To-Market Strategy?
Why is it that the first thing a business leader wants to review when it comes to launching a new product is the Pricing Strategy? One way to handle that – and win some time – is to ask if there are two essential pre-requisites for a Product Pricing Strategy: a Business Strategy and a Go-To-Market Strategy. After a silent pause, ask them if they’d like a couple of weeks to come up with one. The pricing process should not only highlight the existence or non-existence of the Business Strategy and Go-To-Market Strategy. but also their viability and robustness.
Is the product development process being adhered to?
Symptoms of this can and will include: higher than expected costs; lower than expected prices; and gross margins that are consequently squeezed; “pauses” in product cost updates from the development team; adverse product cost surprises which appear late in the process; an absence of profitability across multiple products within the same business area.
In one case, a product team deviated from the documented procedure and didn’t ask the supplier to update the product cost quote every time the engineering specification was changed. So two weeks prior to launch, the supplier took full advantage of processing six months of engineering change order requests in one go. The product team didn’t have a leg to stand on. The product – which used to be a top 3 seller for the company – was ultimately discontinued and the development team “disbanded”.
Is anyone paying attention?
Pricing can also be used to see if the competition is paying attention. Do they respond to your price moves as quickly as they should? Do their moves make sense? How consistent – or rather inconsistent – is their response? In one case we made an aggressive price move which we knew would pay off for us. But when our competitor didn’t respond we knew they were asleep at the wheel. We not only knew that the pay-off would be bigger, but we knew that we had found our competitor’s weak spot. So the following quarter we double-downed and made another aggressive move. We used to count the days before they responded. And then the weeks. And then the months ….
