The wrong Metric = the wrong Price, and the 'Road to Per-dition'...

Ever wondered if your organisation is charging the right Price? Have you considered that what it is charging for, is actually not what is received? Your income depends on this...

I have posted about the idea of a 'Goldilocks Price' previously - the calculation and resulting figure charged for a product or service that is neither too low or high, cheap or expensive, and feels 'just right' - where the organisation is happy and feels somewhat comfortable that it has settled on 'precisely' the correct price.

You won't be surprised to find that almost no-one is confident with how they price up their offer, or wholly happy with the resulting (and often confusing) range of prices they ultimately charge!

Why is this so? Surely we all have an advanced notion of what our products and services are worth in our markets? A process we are confident to use that logically dictates what we charge? After all, pricing has been one of the 'Ps of Marketing' for so long now, surely we must have a sophisticated, robust and complete understanding of how to price correctly?

No we do not. The reason is in large part that we are looking at pricing the wrong way and measuring the wrong things:

• We focus on presumed purchasing 'benefits' - often just promotional gimmickry - rather than real, received, substantive operational benefits
• Our pricing process takes its lead from our wish to profit, rather than the markets needs or the 'profit' attributed to their use of our product or service
• The metrics employed - the currencies if you will - is ALL WRONG

So how are the metrics at fault? Surely what we have always done still works (as everyone does the same?) - We have industry-standard practices and expectations and a standard way to price that even our toughest customers and competitors grasp and accept as the norm?

That is precisely the problem! "We do what we have always done, and always get what we've always got." Yet, curiously, we expect the results to be different.

We price in the way we, and the sector, always has - so we end up with wholly arbitrary pricing calculations set by 'tradition' rather than by value received! How odd; what a missed opportunity.

Examples of wrongful metrics and charging?

• 'per-seat' pricing (e.g. in IT and software, passenger journeys (or any other 'per' calculation - this is the 'road to per-dition')
• relative pricing based on our competitor's positioning (not our own) - therefore the market will never be 'ours', we will just continue to be a passenger in the market, never the driver or disruptor
• how much time we allocate to a project or Client (time-on-the-job, 'presenteeism' / attendance, etc. - all are used as a surrogate for careful, meaningful value deliberation)
• how much a 'deliverable' component, or whole product or service, marginally contributes to profit; along with cost-plus, cost-based, cost-accounting methods - all standard accountancy methods used in pricing are contrary to proper and logical pricing and a major hurdle to competitiveness and differentiation
• what our shareholder(s) / owner(s) expect or demand (nothing to do with the customer or market-value)
• arbitrary targets - financial, throughput, 'turnstyle', churning, and 'results reporting' (monthly, quarterly, annual, etc) - all skew pricing and mean that the quest for true value and sensible, better, pricing is evermore fruitless
• comparing what we do and are, to others in the market, that are in no way comparable to us (exemplified in ridiculous, bland, serial benchmarking)
• calculating price in the same way as others is not being competitive, it is being bland at best, and commodifying your organisation and offer at worst!
• likewise charging based in inputs and effort, not on outputs and absolute value is counter-productive ('this was difficult to create and deliver for us, so let's charge more (or) it was easy, so let's drop the price, have a race to the bottom, a war of attrition in the market and be a poor competitor')... etc... Desperation.
• and whole industries / sectors deploy the wrong currency (think local council planners, who process and control construction planning applications - their 'currency' is to take as long as possible, employing as many changes and iterations as they can - as they are expected to assert that modifications must be made - otherwise, why have planners?). Imagine if they truly added substantive value to the 'build' and were quick to actually assist and add value to the process rather than hold it up? If only they adopted their customer's currency... Therein lies the essence of a massive opportunity to do things differently!

Just because some metric or measurement seems easy to use and calculate, that doesn't make it right. Pricing needs to be judged on value delivered, not on effort, margins, per-this-or-that, or other arbitrary and meaningless calculation just because it is either simple, or standard practice in your organisation or the sector. Remember, the user, the presumed 'beneficiary' does not work with the same calculation or currency as you and calculates 'value' very differently. Ignore at your peril!...

Interested in talking Pricing? Then join us at our Edinburgh Roundtable on Pricing shortly. Just ping us for details!