Price lists are never quite current enough, sufficiently detailed, or cover enough of the awkward special situations that customers raise. So, there’s a tendency for HQ product and pricing folks to do a lot of tinkering on the margins with their price lists. We may be forgetting the “consumers” of price lists, though: sales reps who pay our salaries and customers wondering what to buy. Complicated pricing models may be self-defeating.
First, the necessary disclaimer. I’m someone who takes obscure pleasure in tuning prices and packaging for marginal improvement. Finding a clever way to boost profits by another 1% is an intellectual victory. Rejiggering bundles and suites is a way to signal which products are important. Part numbers beg for housekeeping.
I see hidden costs in excessive revisions to price sheets, though. Let’s consider two: slow absorption and excessive complexity.
Publishing Isn’t the End
Sitting in the corporate ivory tower, it’s easy to imagine that publishing a new price list is the completion of a process. After intense negotiations among the financial / engineering / marketing folks, you’ve come to some agreement. At 10AM on a Tuesday, you formally post a new version of your price list to the company website and begin to mail it out to key resellers. In reality, the work has just begun.
Throughout your sales channel and customer base, there are now people with outdated price sheets. Not just the most recent one, but 4 or 5 generations of out-of-date product numbers and configurations and prices. Some copies are pinned to cubicle walls, others are laminated in binders or stapled to slow-moving customer proposals. Even though these are legally invalidated by your new version (“effective immediately, supercedes all previous”), the world doesn’t stop. And you really don’t want your sales force to interrupt deals already in progress.
With an aggressive push, you’ve started the trickle of new price lists replacing old. Unfortunately, sales teams don’t share your fanatical devotion to staying current, and don’t want to confuse prospects with new stuff. I usually assume 30 to 90 days for word to get out.
What to do?
- Change as few things as possible. Assume that resellers and customers will be working from last year’s list, so identical prices and product numbers will let them place some of their orders correctly.
- Choose a regular expiration date for price lists, perhaps twice per year. Even if nothing is new, the old price sheets will be replaced each January 15th and July 15th. Your biggest challenges will be to get sign-off on all changes before the deadline, and to avoid interim updates.
- If publishing schedules won’t work, tie new price lists to major product announcements. You will be sending out cartons of new materials anyway — data sheets, presentations, train-the-trainer videos, whatever. “Since WidgetWare v6.0 replaces v4.0 through 5.9, we are adding its new modules and packaging to our revised price list. Previous price sheets are now obsoleted.”
Remember that price list updates are expensive for you and painful for the recipients. Regardless of the number of changes. Tiny improvements and clarifications are rarely worth the trouble.
Keeping It Simple
A bigger problem is an overly complicated price list. This may be a reflection of an overly fussy pricing model that has too many dimensions. (“For 50,000 transactions per month or less, the per-seat charge plus the per-server charge apply except when the customer wants a site license…”) Mere mortals will never get it right, even with 100 pages of examples.
Similarly, complex price lists may be the accumulation of different usage scenarios. If a PM has failed to choose a target customer and application, she may try to define a half-dozen different ways to buy her product, and wrap each in its own pricing model. (“For hosted applications, see page 3. For pay-per-transaction customers, page 4. One-time licenses plus annual maintenance on page 6.”) In the real world, it’s very difficult to define the exact boundary between hosted and leased software, forcing every large sale to be reviewed by Talmudic scholars.
Out in the field, where sales teams wrestle to bring in your paycheck, pricing should never be the focus of a sales call. You want your reps to spend prospects’ precious time on benefits, solution selling, and creative problem-solving. As soon as pricing becomes the focus, the sales team loses their ability to sell value.
Sounds Like…
Try on these three customer conversations about an accounting package:
Worst:
- Sales rep: ”…it includes general ledger integration, Sarbanes-Oxley reporting, automatic calculation of Federal and state depreciation, and meets all of the requirements you’ve listed in your strategic overview.”
- Customer: “Great. How’s it priced?”
- Sales rep: “Well, depending on whether you choose the server-based option with concurrent licensing or the per-seat ASP hosting approach, and estimating your usage at 500 to 1000 completed transactions per week plus 200 MB of downloaded reports and partial support upgrades…”
- Customer, unspoken: “My head hurts, and I’ll have to run every scenario myself to see which is the best deal.”
Your masterpiece is alienating customers. Dumb prospects will walk away, and smart ones will force your rep to negotiate against himself. Expect to hear about it later.
Weak:
- Customer: “Great. How’s it priced?”
- Sales rep: “I have the Nov-25th price sheet, and it was $215 per seat per year plus options, but there may have been some changes since then. When I get back to my desk, I’ll check the online version and send over a quote.”
- Customer, unspoken: “I wonder if this guy is disorganized, dishonest, or just works for a screwed-up company.”
You haven’t helped your team close the deal.
Best:
- Customer: “Great. How’s it priced?”
- Sales rep: “It’s roughly $200 to $240 per seat per year, depending on the options.”
- Customer “OK. I’d really like to see you demonstrate the interface with our existing warehouse systems…?”
Your team sold solutions and benefits. Pricing was never the focus and didn’t confuse anyone.
SoundBytes
Sales teams want to spend time selling benefits and solutions. Customers want to solve problems, perhaps with the stuff you sell. Pricing is best when it is simple and stable enough to blend into the background.