Supply and Demand: Price too high?
A challenge with managing any product or service is determining how to price the offer. There are many methods to determine price such as comparing with the competition, evaluating willingness to pay as well as assessing supply and demand. What if there was little supply and a lot of demand?
My grandfather told a story that provided a good lesson about supply and demand. In his later years of life, he refurbished wooden antiques and sold them throughout the midwest United States. At one antique show, he had a number of antique tools on display. They were priced at $14.00. One morning, he noticed a man stop by and give his tools a thorough examination. Then, the man walked away. The man came back again about an hour later and re-examined the tools. He walked away again. He came back a third time and had a very short conversation with my grandfather:
Man: “There is a store in town that had these tools for $7.00”
Grandfather: “Do they have anymore?”
Grandfather: “Well – if I didn’t have any, I would sell them for $7.00 as well. But I have these and they are $14.00”
He always had a dry sense of humor. Was he priced too high? He had a supply. Was there demand?
I told you that story so I could tell you this one. At one time, I worked for a Sr. VP of Operations for a small software company. He decided to give me a new assignment. There was a group of application developers that were eating up a lot of salary but their efforts weren’t tied to any revenue stream. My assignment: Recommend what needs to be done with them to eliminate the costs.
I met with the team and found they were working on a stack of customer requests to modify custom applications on legacy systems. These modifications included significant design changes to the applications as well as complex interface updates to billing and CRM systems – all at no charge.
After my discussions, here were my observations:
1. They were providing a value-added service to existing customers. Without a billing/CRM system interface the application would not function and not be able to fulfill its purpose.
2. They had no process or organization to the work. They were receiving work orders from multiple directions including customer service, sales and the customers themselves. The work orders were not tracked, quantified or scheduled.
3. Customers being served were on legacy systems that needed to be upgraded.
4. They had no means or methodology in place of showing their value.
Their efforts were essential to maintaining a satisfied customer base. My recommendation to the Sr. VP of Operations was to define a standardized process for the work and to charge customers for the value provided. There was plenty of demand and this group was the only supplier for the service. He agreed to move forward with the recommendation.
As a team, we defined a standardized process for receiving, tracking and completing the work orders including customer sign-off. Since there was a consistency in the type of work being completed, we also defined a standard pricing catalog for various requests being made.
This is when things got interesting. The head of customer service went through roof thinking that she and her staff would be inundated with complaints about being charged for programming modifications. The head of sales felt that existing sales relationships would be put in jeopardy and that they would not be able to upgrade those customers to the next-generation systems being deployed. There was a lot of pressure being applied to not make any changes to the way things were being done.
Within the first 30-days of implementing the new process and pricing for value-added services, contrary to the fears of customer service and sales, the feedback we received from customers was: “I’m surprised you didn’t do this earlier!” The demand was there. The customers appreciated the value of the service being provided and were willing to pay for it.
Over the next set of quarters, the team successfully tracked, reported and recognized revenue to not only cover their salaries but also add some margin to the company’s bottom line. Customer service never received the high volume of complaints. Sales maintained their relationships and successfully upgraded those customers to the next-generation systems.
And as for my grandfather was his price too high? He didn’t need to drop his price by 50%. He knew the value of his products, the demand was there and he had no trouble selling them.
Corner Office Wisdom:
If there is demand for a product or service that you can supply, don’t sell yourself short. There is a willingness to pay. Price it in such a way that allows customers to appreciate the value of your offer.
I Want To Be Iron Man! Don’t You?
In seeing the Iron Man heads up display for the first time, I thought – “Wow! That’s awesome!”
Google is planning to release a cool piece of new technology called Google Glass. If you haven’t heard of it, it is a pair of glasses to be worn by a person providing them a heads up display – very similar in concept to the Iron Man graphics.
With a simple tap of the finger or using voice commands, the wearer will be able to access and use Google Maps, Google+, Gmail, take photos and videos and share them with social networks like Facebook and Twitter. Google Glass is an open platform allowing third-party developers to create applications for it. Check out this demo by TechCrunch. Now Google will not only have your finger-tips but also your eyeballs.
Through mobile devices and social media, retailers and advertisers have been able to accumulate massive amounts of data about their customers. By analyzing this information (big data), they have been able to gain deeper insights into the buying habits of customers such as where and when customers made their purchase. Was it done online, or was it at a retail store and which location, time of day and day of the week? Retailers also have more detailed customer feedback, such as, did customers “tweet” about it, give it a “like” or not, was it easy to use or wear, was the service good when customer service was called and was it recommended to others.
The goal of every advertiser is to grab your attention. With a display just an inch away from your eyes, advertisers and retailers all over are salivating at how they can take advantage of this technology. Combined with all of the information they now have available, it is a given they plan to use it to further build and reinforce their brands. Loyalty marketers will be anxious to draw you back into their stores with “we are just around the corner” notifications.
It will be interesting to see if there will be any new value-added services that become available with Google Glass or if this will only be a new platform with a new rendering for existing applications. It will also be interesting to see if there is any adjustment in market share between Google, Apple and the other major vendors of mobile devices.
From a technology perspective I can’t wait to try it out. From a cost perspective, it’s pretty steep at $1,500 each although the price is expected to drop to $299. While it’s not a full Tony Stark/Iron Man experience, it’s easy to see how it can get there.
It appears that Google Glass does have some challenges ahead as the United Kingdom’s Department of Transport is putting together “Don’t Glass and Drive” legislation. Perhaps with Glass 2.0, Google will also market arc-reactor powered jet boots along with it.
Corner Office Wisdom:
It’s not for everyone at the initial starting price of $1,500.
Opportunities are like buses
…if you miss one, another one will come along. How are you going to make sure that you don’t miss it?
Businesses with strong discipline in their sales process will conduct a Win/Loss Analysis with their sales funnel. The goal is to determine why a deal was won and why a different one was lost. The focus is to achieve continuous improvement in the overall sales process. There are usually many factors that contribute to the win or loss of a sale, but three major areas are:
2. Product or Solution
People are more comfortable purchasing from people they know and trust. For opportunities that are won, chances are there are strong relationships all the way up and down the organization that made the buying decision. For opportunities lost, were all of the decision makers and influencers known or identified? Were their requirements understood? I have seen many opportunities missed where the key decision makers were not clearly determined. For the ones that were known, what was the relationship like? What was done to strengthen it? What improvements can be made?
A true litmus test on the relationship is: how did the opportunity become known? Was it through a request for proposal or quote (RFP/RFQ)? Does it use terms common with another competitor’s products? Often companies will get “assistance” in writing the requirements from a particular vendor. If you didn’t help write it, then your competitor probably has a closer relationship. Work needs to be done to get a stronger relationship with the customer and get between the customer and the competitor and get more of the customers mindshare.
Product or Solution
How do you know if you have the right product or solution for the customer requirements? Just review the responses to the RFP/RFQ. If a significant number of responses are answered “Roadmap Item” or “Requires Development”, then you are trying to fit a square peg in a round hole. Too many of those and the probability of winning will drop significantly.
The results from the Win/Loss Analysis can be a great source of feedback to the product managers and development teams highlighting key gaps in the product and to shape its direction.
When people hear the term “offer”, price is the first thing that comes to mind. For a deal that is won, was too much money left on the table? For the deals that were lost, price is the first to blame. I have seen opportunities won where our offer was the highest price on the short list of competitors and we still won. Conversely, I have also seen opportunities lost where we were at a lower price than our competitors.
An offer is more than just price. It also includes the perceived value that the customer expects to receive from the package such as a quantifiable return on investment (ROI) and total cost of ownership (TCO). It also includes their comfort level on product support vs. “hidden costs” and even the health of the business. Are you, the vendor, going to be around long enough to support the product? Engaging marketing teams in the Win/Loss Analysis can provide focus on strengthening and further articulating the value propositions.
The goal of the Win/Loss Analysis is to identify areas of continuous improvement in the sales process, product and support teams and can be extremely useful across multiple organizations.
Corner Office Wisdom:
Opportunities are like buses. Performing a Win/Loss Analysis will make sure you don’t miss the next one.
That was one of first words of advice I ever heard. They came from my father. For my inaugural post to this blog, it is certainly more than appropriate that it comes from him.
Dad always wanted my brother and me to always do the best we could in any activity whether it was learning a musical instrument or playing a sport. He would always work with us to help us with our technique. We would review the fundamentals and look for ways to improve. He would make sure we had time to practice getting those fundamentals down so at game time, we were ready to perform and perform well.
After each practice and game, we would talk about what improvements we might make and how we can become better players. Then we would hit the practice field and work on those adjustments until they came natural. He knew the better we performed, the more success and fun we would have.
Even today, when facing business or personal challenges, he still continues to be a great coach and mentor. His advice:
1. Review the fundamentals
2. Look for areas to improve
3. “Swing hard!!”
Perform your best and enjoy the success!