At a recent networking event, I was chatting with a pricing manager from a major company famed for their innovation. She made a comment that really struck me:
“As an innovative company, we live and die on our ability to get price.”
As a professional pricer, I frequently work with companies to understand how pricing strategy can and should support the overall business strategy, but this comment reminded me of the fundamentals. Famed economist Michael Porter describes two generic sources of competitive advantage: cost leadership and differentiation. Generally, companies will leverage one of these strategies. Cost leaders focus on delivering products of adequate quality to customers who seek the lowest prices. Differentiation leaders provide innovative new products and services to customers who seek additional value. The challenge is, differentiation leaders must not only justify a higher price, but also capture that price in the age of procurement. Here are a few tips on how to do that:
1. Offer differentiation that matters (Differential Value)
The value that customers derive from your offering is the key thread, underpinning all efforts of differentiation. It’s not just about making something different; it’s about delivering something to customers in a way that they would willingly pay you more than they would for a competitive offering. In fact, differential value is so important to an innovative company that it may be more accurate to call a differentiation strategy a value strategy.
Note: Senior leadership should strive to foster a value culture, in which everyone is focused on delivering benefits that customers care about and competitors can’t match – and getting paid for it. Aligning internal functions around unique value created for customers is key for differentiation focused companies to thrive.
2. Target customers who will benefit and are willing to pay (Customer Qualification)
Not all customers value the same things. Customers care about how you can help their business and ultimately how your solution improves their bottom line. For B2B companies, it is essential to quantify value. Your buyer may see your intrinsic value, but if he can take a dollar value to his CFO, you are much more likely to gain her support.
Note: The most successful salespeople within differentiated companies learn to identify and walk away from a price-sensitive commodity buyer when they cannot offer the low-cost solution.
3. Continue to act earlier in the sales cycle (Value Selling)
In the B2B world, sales is where the rubber hits the road; this is where price setting meets price getting. You need to arm your sales force with value messages tuned to each member of the customer buying center to educate and explain how your solution uniquely helps each stakeholder achieve their goals. Building internal support within your customer buying center is crucial to holding price in the final negotiations.
Note: If procurement pushes for commoditization, the sales force needs the confidence to hold their ground. Arm the sales team with Give-Gets to pull out valuable features or services and call procurement’s bluff.
All companies need to utilize value when developing and executing their go-to-market strategies, however, if you are an Innovative company and “…live or die on your ability to get price,” I recommend implementing these three strategies across your organization.