Paul’s Pricing Dictionary: Why You Might Not Have Uncompetitive Product Costs After All

 

Uncompetitive Product Costs, n.pl.

Have you ever thought that you might have competitive product costs after all, and that it’s your pricing that sucks? Just saying.

Maybe the way your bid team analyzes the deal is different to the competition? Maybe the scope of their analysis is different? Maybe their criteria for what is acceptable is different? Maybe they know how to structure deals better than you do?

Maybe you haven’t structured the deal correctly? Maybe you need to re-structure the deal.

How is sales comp impacting this? Sales management? Sales behavior?

Maybe you need to get a pricing expert in? Someone who can give you a better idea of whether you are cost uncompetitive or not.

Maybe.

Is Your Pricing Holding You Back?

Great products? Lackluster margins? Underwhelming revenue growth? Maybe your pricing is holding you back. Get a Pricing Diagnostic and break free.

 

Paul’s Pricing Dictionary: Uncompetitive Product Costs

 

Uncompetitive Product Costs, n.pl.

Have you ever thought that you might have competitive product costs after all, and that it’s your pricing that sucks? Just saying.

Paul’s Pricing Dictionary: New Product Insanity (NPI)

 

New Product Insanity, n.

Thinking that your next New Product will fix all your business problems when it has never done so in the past.

Paul’s Pricing Dictionary: Meta Price Analysis

Keyboard with hot key for price analysisMeta Price Analysis, n.

Analysis which determines how much and what type of price analysis needs to be done.

It’s not how much analysis you do that matters; it’s how little, quick, repeatable and intelligible the analysis is, and most importantly much insight you create in the process:

Meta Price Analysis Value = f {Insight, Speed, Repeatability, Intelligibility / Effort}

Paul’s Pricing Dictionary: Big Data

P 75x75Big Data, n. pl. but s. or pl. in constr., often attrib.

It doesn’t matter how big your data is, it’s how much insight you get from it that counts.

 

Beginning to See the Light Through the Cloud

 

scale-computing-river-cruise-at-spiceworld2016-low-res-3612x2032Spiceheads enjoying Scale Computing’s on-premise hospitality at Spiceworks 2016 @ScaleComputing #Spiceworld2016

Paul’s Pricing Dictionary: Cost-plus Pricing (Part 2)

P 75x75Cost-plus pricing, n. gerund, delusional.

Going beyond Nagle & Holden … cost-plus prices:

– miss psychological price points

– effectively destabilize the business because they’re set with no perception of customer value in mind (if the prices are set irrationally, customer behavior will be irrational)

– assume that all the costs are cost-competitive, right? Wrong.

– temporarily shield uncompetitive procurement/costing/product management

– prevent the necessary and creative tension between pricing (“these products are not cost competitive!”) and costing/procurement (“oh yes they are!”) to help improve the business as whole

– are very apparent to professional purchasers & purchasing depts. and can be exploited accordingly

– would be severely lagged and ineffective when used for life-cycle and X-rate management

– can be easily gamed by the competition: it’s very obvious when a company doesn’t set its price competitively

– wait, don’t tell me that with cost-plus pricing you don’t even bother with competitive analysis either ….?

Any more?

Paul’s Pricing Dictionary: Cost-plus Pricing

P 75x75Cost-plus pricing, n. gerund, delusional.

 

 

  1. From “The Strategy & Tactics of Pricing” Nagle & Holden, 2nd edition (1987 & 1995):

Cost-plus Pricing:

– “carries an aura of financial prudence”

– “blueprint for mediocre financial performance”

– “impossible to determine product’s cost before a price has been set”

cost = ƒ(volume) = ƒ(price) but if price = ƒ(cost) then you create an infinite loop which can will lead to the wrong solution (“flawed circularity” or – speaking in engineering rather than tabloid terms – catastrophic)

– creates a catastrophic cycle of a decline when competition increases: volumes decline, then overheads allocated to the products will increase leading to increased prices, which in turn will drive volumes down, increases overheads …. etc

2. Cost-plus pricing assumes costs are accurate, which is rarely the case, and, in reality, there is no good way of defining – let alone allocating – overheads:

cost = ƒ(allocations) = ƒ(volume) = ƒ(price), and again, if price = ƒ(cost) then you create an infinite loop which can will lead to the wrong solution (“flawed circularity” or – again, speaking in engineering rather than tabloid terms – catastrophic)

3. Sub-optimized pricing. Every price created by cost-plus pricing is either too high or too low. Every price could and should be improved.

 

Paul’s Pricing Dictionary: Folgers Coffee

P 75x75Folgers Coffee, n. apocryphal, euphemism.

“You don’t want to end up like a Product Manager at Folgers Coffee”. As a way of encouraging and warning Product Managers that their role in not only in resisting commoditization – but also not being enablers of it – was vital, I would often relay what I presumed had happened at Folgers with Product Managers there stumbling around the office and mumbling into their coffee:

“Well, it’s just a commodity” while overlooking a thriving Starbucks …. Well here’s a view of Folgers HQ and the Starbucks across the street that they may well have looked over … and over-looked:

folgers-1173-x-742

View of the Starbucks opposite Folgers Coffee’s old HQ in San Francisco.

Part 1 of a series of escalations about commodities.

 

 

 

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