What is Pricing? 🏷️ Podcast Ep. 2
In today’s episode of Pricing College – Aidan and Joanna ask that seemingly easy question – what is pricing, actually? And the answer is not as straightforward as you may expect.
TIME-STAMPED SHOW NOTES:
[00:37] What is pricing?
[01:15] Various approaches to pricing in different companies.
[01:50] All the different spectrums of approaches to the process.
[02:12] You do not have to be an expert.
[02:45] In many companies, people do not know what pricing is.
[03:25] If you can not measure it, you can not improve it.
[03:48] Many companies simply turn the process into a guessing game.
[05:30] The right process is more than just moving prices up and down in a spreadsheet.
Hello and welcome to Pricing College with your hosts Aidan Campbell and Joanna Wells. In today’s episode, we want to cover the very fundamental question for businesses, “What is pricing?” We hear that quite a bit.
Pricing, to me, is a process. It’s a price-setting process to set your customer invoice prices to generate value for the business and your customers. I often think of a very simple way of looking at it. It is a way of charging your customers for the product or services that you provide. Simply getting the dollars in after doing all the hard work.
Some people maybe don’t put the hard work into pricing, thinking that they don’t have to. In fact, there’s a lot of guesswork that happens around it. For other companies, they have a little bit more of a sophisticated approach to their methods. They think about their cost and then maybe adding or applying a markup.
Then there are those few companies that think about pricing in terms of the market, customers, changes in the market, and economic market conditions. Now, this is when you’ll see the process become more complicated and really exciting.
I think that’s right. We certainly, at least I haven’t worked in a number of companies. I think we see all different spectrums from companies who have no pricing approach or function, up to the very advanced companies. Obviously, when you apply expertise to anything, you will expect to see better results. Similarly, in pricing and business, better results translate to more dollars.
The good thing about pricing is that you don’t have to be an expert to do some good things and see improvements. You can do some small basic improvements to your process and see some great results too. But obviously, it’s always good to have somebody in the business with a bit more expertise to educate the business on what pricing is and could be for the business. Take small steps and this is what pricing is about – learning.
One thing I find interesting is that in many companies, people do not know what pricing is. They don’t know where it is set in the business. Secondly, they’re not even aware, at least consciously, that it is a separate function.
That’s right. It’s almost like they just think that pricing just appears. It’s just a new set of numbers that have just appeared out of nowhere. And the process in producing those numbers would’ve never looked like it’s just happened. To be honest, it’s a little ignored but there’s a whole discipline around it. There are people who are dedicated to improving the process.
It’s like that particular saying. I don’t know who was it from actually – but if you can’t measure it, you can’t improve it. In many companies, there’s just no dedication – whether it’s a dedicated function or dedicating their time to pricing. Because of that, we certainly get sub-optimal outcomes.
We have those suboptimal outcomes that tend to be based on people who are guessing because they don’t have the support, tools, and mechanisms to give them that edge. Often, maybe they want to guess which prices are right and that’s kind of a scary thing! You want your pricing to be right and you want to generate value for the business.
Some people just don’t have the tools and the skills and knowledge to do this. So, asking the question of what is pricing, is a great way to reveal what it is. There’s a whole support mechanism out there for people, businesses, and teams. There are options where they can be improved and be better skilled at their processes.
I think one of the reasons behind this podcast from our perspective is that often, people in companies have to explain to senior leaders, senior stakeholders what their job is and what pricing does. I think the first time, most people hear the process is one of the classic four P’s of marketing. And I can’t even remember what those classic four P’s are. But in recent years, pricing has moved away from being a subset of marketing to being a real stand-alone value-driven, value delivering sector in any company.
Yeah, that’s the whole discipline just dedicated to the process. And when we say pricing, it’s not just the price. It could be a product mix, revenue management, it’s discounting, tactical or strategic pricing, or market pricing. It’s not just moving a price up and down in a spreadsheet. Rather, it’s thinking about value. What does that price represent to customers? How do customers buy from us? And this is where the process becomes really interesting and moves away from that pure accountancy-driven cost-plus price process.
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Tune in to Episode 3 to find out where pricing is set in 2020.
For a comprehensive view on building a great pricing team to prevent loss in revenue,
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