Deflation and Pricing – 6 Suggestions for the CMO

Pricing is one the four “P’s” of Marketing.  The right price drives margin, profit, and to some degree perception of the product.  But it appears that a fixed price is rapidly going the way of the buggy whip.  If this is true, has the CMO lost one of his key tools?

It is an axiom among hi-tech buyers that negotiating a price in the last week of the quarter will result in a cost savings over the “quoted” or “regular” price.  Whether the cost savings are a lower price or are expressed as additional features at no cost, extended warranties or something similar, the result is the same…lower margin for the seller.

On the other side many Sales Managers, backed by Management, tell their sales force, “Don’t let price get in the way of closing a sale!”  This is communicated to the buyer, either directly or indirectly, again resulting in a pricing concession and lower margins.

The offline and online business press has been buzzing about deflation, often drawing parallels to the Japanese experience of the past 15 years.  In a deflationary environment, buyers wait to the last minute to make their buying decision, and then seek the lowest price for a product that meets their needs.  Sellers, with inventory on hand or needing to meet a goal, recognize that something is better than nothing and compete for the business based on price.  After repetitive downward rounds marginal vendors go out of business, leaving larger players who are still forced to compete on price.

Assuming that deflationary pricing is a fact of life through 2011, how should a B2B CMO price his/her product?  Some suggestions are:

  1. Emphasize the value proposition of the product/service to the buyer, highlighting the unique differentiating features that will save the buyer time and money, allowing him to be more profitable using your product.  This can be communicated via:
    1. Use cases
    2. Testimonials
    3. Blogs/Tweets
  2. Motivate the sales force and buyers to make a decision earlier, thereby blocking out competition.  If there is tacit acknowledgement that closing the sale in the last week of the quarter results in a 5% price reduction, offer those monies as an incentive to close the deal earlier in the quarter.
  3. Increase the price of add-ons and service.  If these are normally “thrown-in” in order to close the deal, make their perceived value higher so that fewer concessions have to be made to show a price reduction.
  4. Provide an estimated ROI based on purchasing the product.
  5. Modify the financial terms of the deal; lower payments for the first six months, lower interest rates, lower cost service contract, etc.
  6. Lower your costs by working with Management and purchasing to ensure that your margins remain constant under the downward pressure.

There are other tactics that can be applied, depending upon each company’s specific situation, i.e., price leader, price follower, etc.

Can you share how you are planning to price your products in a deflationary environment?

RHM  7/22/2010

1 comment to Deflation and Pricing – 6 Suggestions for the CMO

  • Jim Matorin

    I am not in this field, but I think hi-tech companies that provide services as part of their value proposition will achieve their pricing objectives regardless of their competition lowering price.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>