Tag Archives: finance

Launch a Product – Step 2: Pricing

This is the second in a series on “What does it take to launch a product?”  This blog is about pricing which is a critical exercise in the process of launching a product. The observations shared here are focused solely on B-to-B sales (business to business, not business to consumer which has many different nuances.)

Golden Rule #1: Sales cannot set standard pricing

Every once in a while, I will hear from someone that their executive team wants sales to set the pricing because they are most aware of the marketplace and the competitive pressure. And while PricingI agree that Sales should have a tremendous amount of input in the pricing process, they shouldn’t have the final say in setting *standard* pricing. It is a bit like having the fox watch the henhouse. Anyone with a quota has different incentives with regards to pricing than someone who is objectively trying to express the business value of a product.  Once Standard pricing is set by Product Management (PM), then Sales will have an active role in deals-based pricing or ICB pricing.  But Standard pricing must be owned by an organization without a quota.

Golden Rule #2: PM (or Finance) should define both Published Pricing and the floor

In the b-to-b world, like most other markets, pricing is negotiated.  It is often the case that you want to publish your standard pricing which is the price that you would love to get, but you understand that there needs to be some wiggle room for the Sales force to negotiate. Our experience has been that when PM sets the standard and the floor, Sales has clear boundaries that they can move within.  Some skeptics will say that Sales will always go straight to the floor and that may be true but it depends on a number of factors – namely their comp plan.  If good salespeople will make more money by pricing closer to the standard/published pricing, then they will.  Less experienced sales people or folks who are compensated on volume and not margin will likely go straight to floor pricing. But if PM defines it, the company should still be confident that adequate margins are maintained, even at floor pricing.