Monday, February 25, 2013

The Time Has Come to Give Your Pricing a Brand

We’ve all heard about “corporate branding” and “personal branding”, but have you ever thought of giving your Pricing a brand of its own?

As I mentioned in my SmartCompany webinar last year, Apple could easily brand their iTunes Pricing “Why Not?” pricing. You hear a song on the radio you really want on your iPhone/iPod. It’s only $1.99. Why not buy it? And supermarkets, from Wal-Mart, to Tesco and Asda commonly adopt the generic branding of EDLP, or “Everyday Low Pricing”.

Last week I caught up with the Managing Partner of a law firm. Not because I need some legal work done, and not because this law firm got rid of time sheets eight or nine months ago (although that was of interest). As part of the move to value-based pricing, this firm has also branded their Pricing “Moore’s Agreed Pricing”, or MAP.

It’s really worth thinking about just some of the benefits of this approach to Pricing:
  • By branding your pricing with your corporate name (something that users of EDLP often don’t do), you make it unique. As a result, you’ve just differentiated yourself with something the competition can never match (unless they acquire you). You have ownership.
  • But for this to be successful, your pricing has to be truly different from the competition. No more picking up an industry benchmarking report and charging the going rate, or something a few percentage points above or below the competition, just to keep the status quo. Leave it for others to tackle customers’ perceptions of “sameness” and “commoditisation”.
  • As a result of the change required, there’s a high likelihood that some sort of company-wide cultural change program will be required. This provides closure to the old pricing model or approach, and excitement and belief around the new pricing model.
  • And that sort of change has to include the support from the upper echelons of the organisation: a corporate pricing champion is mandatory. 
  • Last, but definitely not least, this new approach to pricing needs to get built into the corporate induction program so all new employees understand how and why the business prices this way. This, along with the pricing champion and the cultural change required, embeds the new approach to pricing in the business.

Branding your Pricing is not going to be without its challenges however. Some people will be fast, early adopters, while others will take a while to master it. Some people will have trouble having value conversations with customers, when they’ve been used to having price-based (and discounting) conversations with them. And they will need to think about pricing on outputs and deliverables, rather than inputs.

But given that all these challenges can be mitigated, it seems to me that there are more advantages than disadvantes to branding your Pricing.

Value-Based Pricing is a Process, not a Project

In my last post, I talked about what Value-Based Pricing is, why companies are adopting it, and why advertising agencies run the risk of “commoditisation hell” by not adopting it. But it would be remiss of me not to tell you how to start your Value-Based Pricing journey.

A couple of years ago, I went on a ride-along with a Sales Rep from one of Australia’s biggest online advertising portals. During the sales pitch, the rep told the advertiser about all the value they were receiving from their advertising: unlimited listings, preferential pricing on enhancement products, page impressions, click-thrus, email enquiries, phone calls, and so on.

The advertiser silently took all of this in, and then replied, “I hate phone calls!” The sales rep was taken aback. “What do you mean, you hate phone calls? That's the most qualified lead to your business that we provide”, she said. “I don’t want to be answering my phone at all hours of the day or night. I value email enquiries because I can respond to them when it suits me.”

This (true) story epitomises why the adverting industry has been a laggard in adopting Value-Based Pricing: they haven’t worked out the real value they are offering. Value-Based Pricing starts with understanding value from the customers’ perspective. The Sales Rep thought that phone calls were the most valuable ROI metric. She was wrong, because value is in the eyes of the beholder (the advertiser).

As I mentioned in my last post, there are three ways a vendor can provide value to a client, either by increasing their revenue, reducing their costs, or minimising their risk. The table below provides just a couple of examples in each category for the advertising industry (there are many more):

Increase Revenue
The advertised products command a higher selling price
New or incremental sales (via new channels or new markets)
Reduce Costs
Creative campaigns foster greater customer awareness and loyalty, which…
Reduces the Cost-to-Serve
Minimise Risk
Campaigns are optimised in (next to) real time
PR & Reputation Management

Sometimes, finding sources of value to monetise requires “out-of-the-box” thinking. Over Thanksgiving last year, Facebook sent a “swat team” to Wal-Mart’s headquarters in Bentonville with the specific objective of optimising 50 million mobile ads that Facebook users would see for toys, televisions and other discounted products. According to MarketingWeek, “…Wal-Mart’s senior team were apparently won over by the service they received and the results”.

So how do you monetise advertising services on the basis of value? Here are just three alternatives:

Option 1: Upfront Pricing
One of the best ways to align the price paid with the value received is to ask the advertiser upfront how much they think the solution you offer is worth. Not convinced that pay-what-you-want (PWYW) will work? Ask the owners of, a website that has generated $23mill in payments since launch, utilising a PWYW pricing model.

Option 2: Contingency Pricing
If the advertising solution delivered achieves a satisfactory outcome, the agency’s fee is significantly higher than what it would earn under a normal fee arrangement. But in the case of a below par result, the agency gets paid less, costs only, or in the worst case, nothing.

Like PWYW, this pricing model may appear scary too, something that must have crossed Google’s mind when they realised that if a user doesn’t click on an ad, they wouldn’t get paid.

Option 3: Guaranteed Pricing
This is not a Value-Based Pricing model that agencies should jump to from the go-get, but where an agency has the knowledge and experience to offer an iron-clad guarantee around a satisfactory outcome for a campaign, it can be a highly differentiated, premium priced alternative.

Value-Based Pricing is a process, not a project. Careful consideration needs to be given to which clients it is applied to, and in what magnitude. It won’t happen in the advertising industry overnight…but it will happen!

This is the second of two articles written for the TrinityP3 blog, where it was originally published on the 18th February 2013

Tuesday, February 12, 2013

Pricing Opportunities in The Long Tail

In 1906, the Italian Economist, Vilfredo Pareto discovered that 80% of the land in Italy belonged to 20% of the population, a finding that has been popularised into the 80:20 (or Pareto) rule. The converse (20% of the land being owned by 80% of the population) was never as popular as the 80:20 rule, until Chris Anderson published his book, “The Long Tail”, in 2006.

Andersons’ book was primarily written from a digital product perspective. There are blockbusters movies at the “pointy end” of the long tail (e.g. Titanic), but at the other end of the curve are the most obscure and unknown movies that few, if any, have ever heard of, never mind watched.

Many Leading Company’s have a long tail of products they sell in relatively small volumes, yet Anderson’s book was inconclusive when it came to pricing strategies for products in the long tail. Should those obscure products be priced high to reflect their scarcity, or low to reflect their demand?

Long tail products are those that are purchased infrequently and in small volumes. This implies that customers probably have pricing amnesia: they probably can’t remember what price they paid for the product the last time they purchased it, if they have in fact purchased the product at all in the past.

With that in mind, here are some pricing strategies that I have recommended to clients with long tail products, in both B2B and B2C markets, many of which are inter-related.

Firstly, consider imposing or increasing minimum order quantities (MOQs). This helps to make it profitable to make a batch of your product or service. Better still, get the customer to buy in bulk (catering for their future needs) and to store or warehouse it themselves.

Given the infrequent purchase of long tail products, customers will occasionally ring up wanting a long tail product in the next 24 hours or so. Urgency is something that can be surcharged, so monetise any urgent deliveries and production runs.

A third opportunity is to remove technical support for the product. This should have already been provided (perhaps when the product was at the blockbuster end of the long tail), or deliver technical support online. This helps reduce the cost-to-serve the customer, which in effect is a stealth price increase.

Exclude long tail products from contract negotiations. Focus these discussions on the key products and services the customer is buying from you, rather than peripheral products.

Finally, monitor customer needs and the product life cycle, particularly in the case of spare parts, which commonly exhibit long tail product characteristics. At some point in time, some products become collectors items (take cars for example), and the fanatical owners of these products are less price sensitive and have a higher willingness to pay than when the product was in earlier stages of its product life cycle.

It is very easy to neglect the pricing of products in the long tail, but as the old adage goes, “look after the pennies and the pounds take care of themselves”. I know of one company that hadn’t reviewed prices in seventeen years (yes, you read right!). There are pricing opportunities in the long tail.