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Price Proposals: Select the Best Ideas to Pursue

Jun 28, 2008
"Free is good -- but read the small print."

-- Anonymous

"People want economy, and they will pay any price to get it."

-- Lee Iacocca

Setting the right price structure is like owning the mint. You can always make more money whenever you want or need it. On the other hand, you have to guard the mint well or others will come in and take what they need, too. Since pricing is so increasingly open, your price structure must fit you like a hand-tailored garment and make your competitors look and feel lousy when they try it on.

Have you ever changed prices in ways that gave you a lasting competitive advantage? Most people have had little successful experience in this area. Conversely, almost everyone has put in a price change that backfired . . . hurt sales, drove customers to competitors, or caused profit margins to crater. How can you avoid having either of these problems or any of the other possible setbacks that can come from price changes?

If you have been focusing on price change opportunities, by now you should have lots of ideas for new price structures. If for some reason you don't, though, encourage more thought and work on generating proposals. At the same time, suggest some additional metaphors to share that you think might be rewarding to stimulate your organization.

Assuming you do have lots of ideas, you will find many of them troubling. Here are some examples of the issues that you may come across.

If you cut prices as part of a certain test for one customer and your other customers find out, you'll have to make the new prices available to everyone.

Two tests take you in totally different directions. You cannot implement both. How do you test without being forced by successful responses to make both changes?

Although a lot of work has gone into documenting that costs will decline from certain changes, no one will know for sure until you have done a very large test. You may miss your budget targets if you are wrong.

Perhaps one pattern looks extremely promising, but its benefits would be sharply blunted unless you could catch competitors by surprise. How do you run a test and maintain secrecy?

You have competitors who tend to overreact to everything that anyone in the industry does on price. They may see all of this testing as meaning that there is an industry price war going on, and that you have launched it. Their retaliation will be massive and expensive to counter.

Also, you may have large customers who are very price sensitive. If you run a test in Tucson, local buyers may be using purchases in the test market to supply Taiwan before long. That will mean that the results of the test will be misleading.

In fact, if you are like many businesses, no one in your organization may have ever tested a significantly different price structure before. If that's the case (and it probably is), you may also be a little uncomfortable about what you don't know about creating and establishing new pricing structures.

As a result, you are probably unsure about how you can safely test enough alternative price structures in order to find at least one that works much better than what you have now. The answer is that you probably cannot and should not do as much testing of new price structures as you do of benefit changes with existing price levels. What should you do instead? Careful analysis of what could go wrong will eliminate many of the ideas as a first step.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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