Thoughts on product management and product marketing...

Value Conversations in Pricing

May 18, 2017

Your company has defined and built a product. Your marketing team promotes it. Your sales team is looking for and persuading buyers to become customers. Ideally, this whole process runs smoothly because you started out by listening to the market.

But much of the time this isn’t the case. Often companies build products because someone thought it was a good idea. By the way, it might have been a good idea. Regardless of how you got here, now you have a product and some people are buying it. That’s excellent.

The question now is are you charging enough? Are you charging too much? This is where a value conversation provides insight into your pricing. The best time to have a value conversation for this purpose is during your win/loss visits.

If you won a deal, the customer received more value from your product that your price. Otherwise they wouldn’t have purchased. It is possible they received a LOT more value and there might have been an opportunity to charge more. We should be asking them. Here are a set of questions you might ask:

  • Which of our capabilities was most important to you?
  • How will you use it?
  • What problem are you trying to solve?
  • What benefit will that give you? Can you put that in dollars?
  • How else might you have solved the problem?

You are learning how they made the decision and trying to tease out how much value they get from your product.

One of my favorite examples of this is Everest Horology Products. They make plastic watchbands for Rolex watches which sell for $200 apiece. Seems expensive for a plastic watchband. But they also did something unique: They asked their customers why they bought the bands. They expected to hear that their buyers needed to replace broken watch bands. Instead, they heard that buyers wanted to protect their investment. You see, a Rolex watchband sells for $1,000. Wearing an Everest band protected their original watchband.

After hearing this message, Everest changed their communication to the market. Their sales skyrocketed. More people would pay $200 to protect their original band than people who had broken their band.  Everest likely could have raised their prices at that point. After all, now they understood the VALUE of what people were buying.

You should also have value conversations after you lose a deal. Why didn’t they buy? Here are some questions you might want to ask during a loss:

  • Did you buy anything? What?
  • How did price play a role in your decision?
  • Could we have added anything to our product so you would have paid the price we were asking?
  • Are there capabilities in our product that you thought were overkill? Things you would never or rarely use?

Here you are striving to find the right price/capability mixture. This may be a market segment that you can create a new product around. You may have missed something important to the segment. Or you may be asking too high a price for this buyer to choose to buy from you. The more you know, the more you can adjust your product and price to optimize your profit.

The lesson here is to go listen to your market. Have value conversations. If you want to create great products that win at good prices you need to understand value. How do your buyers perceive value?


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