Mark Stiving

Blog Post
Why Companies Don’t Focus on Pricing
Dec 20, 2016 - Pricing is the most powerful of all of the marketing mix levers. Depending on gross margin, a 1 percent improvement in pricing can lead to a 10 percent increase in profitability. Yet, many companies don’t have a company-wide effort for price management. Sure, all companies have someone or some department who does pricing but very few truly understand and focus on pricing. Why? Let’s look at several explanations. It’s not their business. Companies spend 99 percent of their time and energy trying to create value in the marketplace. They do this by designing and building high-quality, innovative products. They market and sell these products. They support their customers. Almost everything a company does either creates or destroys value and companies wisely focus on how to create more value. Pricing isn’t creating value, so it’s just not a focus. They don’t realize the importance of price. This goes along with the previous reason. Invoicing doesn’t create value (but it can destroy it) yet companies realize that invoicing is important, otherwise they wouldn’t get paid and would go out of business. Pricing feels like tweaking invoicing. Invoicing is all or nothing. Pricing happens at the margin. Of course we know pricing is […]
Dec 20, 2016 - Pricing is the most powerful of all of the marketing mix levers. Depending on gross margin, a 1 percent improvement in pricing can lead to a 10 percent increase in profitability. Yet, many companies don’t have a company-wide effort for price management. Sure, all companies have someone or some department who does pricing but very few truly understand and focus on pricing. Why? Let’s look at several explanations. It’s not their business. Companies spend 99 percent of their time and energy trying to create value in the marketplace. They do this by designing and building high-quality, innovative products. They market and sell these products. They support their customers. Almost everything a company does either creates or destroys value and companies wisely focus on how to create more value. Pricing isn’t creating value, so it’s just not a focus. They don’t realize the importance of price. This goes along with the previous reason. Invoicing doesn’t create value (but it can destroy it) yet companies realize that invoicing is important, otherwise they wouldn’t get paid and would go out of business. Pricing feels like tweaking invoicing. Invoicing is all or nothing. Pricing happens at the margin. Of course we know pricing is […]
Blog Post
Fake Sales at Top Retailers: The Power of Discounts
Jan 03, 2017 - Los Angeles City Attorney Mike Feuer filed a lawsuit against Macy’s, Kohls, JC Penney and Sears for deceptive advertising. These firms allegedly advertised a high original price with a low sale price without ever having sold the product at the advertised original price. The law in California states that these firms must have sold the product at the original price within the previous three months. We will let Mike Feuer deal with the legality. Let’s talk about the power of discounts. Assume a product sells for $10. You want this product and are willing to pay the price. However, how much better would you feel if you knew the product normally sells for $20 and you could buy it at $10? If you think about it, the normal price should be irrelevant to your decision. But it’s not. It feels so good to get a discount. This is one implementation of a concept called reference price. A reference price is simply the price the shopper believes the product should sell for. Reference prices are formed many ways. One way is when a shopper has shopped for a period of time, knows the price of a product and then sees it go on sale. This […]
Jan 03, 2017 - Los Angeles City Attorney Mike Feuer filed a lawsuit against Macy’s, Kohls, JC Penney and Sears for deceptive advertising. These firms allegedly advertised a high original price with a low sale price without ever having sold the product at the advertised original price. The law in California states that these firms must have sold the product at the original price within the previous three months. We will let Mike Feuer deal with the legality. Let’s talk about the power of discounts. Assume a product sells for $10. You want this product and are willing to pay the price. However, how much better would you feel if you knew the product normally sells for $20 and you could buy it at $10? If you think about it, the normal price should be irrelevant to your decision. But it’s not. It feels so good to get a discount. This is one implementation of a concept called reference price. A reference price is simply the price the shopper believes the product should sell for. Reference prices are formed many ways. One way is when a shopper has shopped for a period of time, knows the price of a product and then sees it go on sale. This […]
Blog Post
When to Price
Jan 16, 2017 - Most companies only set prices after they have developed a product. That is certainly a critical time and it is the most obvious. They have to finalize the price at that moment. However, pricing should be done at many steps during the product development process and throughout the life of the product. Before a company builds a product, hopefully they have a business plan. That business plan should include revenue forecasts. Revenue comes from units sold times price per unit. You have to know price to get to revenue. So, the product should have a price on it during the business plan stage. Going back even earlier, pricing is also important in deciding which opportunities deserve the investment of a business plan. If we build something, will anybody pay for it? A reasonable number? The number doesn’t have to be precise, but a price estimate is important. Another key role of pricing during the product development process is in defining the product portfolio strategy. This requires a clear understanding of the market segment(s) you are going after. What different versions should you build based on these market segments and their willingness to pay? Should you build a platform and sell […]
Jan 16, 2017 - Most companies only set prices after they have developed a product. That is certainly a critical time and it is the most obvious. They have to finalize the price at that moment. However, pricing should be done at many steps during the product development process and throughout the life of the product. Before a company builds a product, hopefully they have a business plan. That business plan should include revenue forecasts. Revenue comes from units sold times price per unit. You have to know price to get to revenue. So, the product should have a price on it during the business plan stage. Going back even earlier, pricing is also important in deciding which opportunities deserve the investment of a business plan. If we build something, will anybody pay for it? A reasonable number? The number doesn’t have to be precise, but a price estimate is important. Another key role of pricing during the product development process is in defining the product portfolio strategy. This requires a clear understanding of the market segment(s) you are going after. What different versions should you build based on these market segments and their willingness to pay? Should you build a platform and sell […]
Blog Post
Tesla Prices Hardware Like It Is Software
Jan 25, 2017 - The biggest difference between hardware and software products is the incremental cost to producing the next unit. Software has practically zero...
Jan 25, 2017 - The biggest difference between hardware and software products is the incremental cost to producing the next unit. Software has practically zero...
Blog Post
Tesla Prices Hardware Like It Is Software
Jan 25, 2017 - The biggest difference between hardware and software products is the incremental cost to producing the next unit. Software has practically zero incremental costs.  Hardware on the other hand has a hard cost to building the next one.  There are parts and manufacturing and logistics and … One pricing technique that software companies have used for a long time is to build a fully functional product, then create sub products by using software switches to turn off some features.  This enables them to sell a lower priced lower featured product to win business from their price sensitive customers.  Then they offer upgrades to those same customers.  When a customer buys an upgrade, they can easily flip the software switch to turn on that capability. Most hardware companies don’t do this.  Instead, hardware companies tend to build a different version of the product for each price point.  Think of the Apple iPhone 7.  They created three different versions: 32 GB, 128 GB, 256 GB.  Each version is physically different based on the amount of memory installed. Tesla is breaking that mold.  When you buy a Model S, it is configured the same as every other Model S (with the exception of the amount […]
Jan 25, 2017 - The biggest difference between hardware and software products is the incremental cost to producing the next unit. Software has practically zero incremental costs.  Hardware on the other hand has a hard cost to building the next one.  There are parts and manufacturing and logistics and … One pricing technique that software companies have used for a long time is to build a fully functional product, then create sub products by using software switches to turn off some features.  This enables them to sell a lower priced lower featured product to win business from their price sensitive customers.  Then they offer upgrades to those same customers.  When a customer buys an upgrade, they can easily flip the software switch to turn on that capability. Most hardware companies don’t do this.  Instead, hardware companies tend to build a different version of the product for each price point.  Think of the Apple iPhone 7.  They created three different versions: 32 GB, 128 GB, 256 GB.  Each version is physically different based on the amount of memory installed. Tesla is breaking that mold.  When you buy a Model S, it is configured the same as every other Model S (with the exception of the amount […]
Blog Post
Good, Better, Best at McDonald’s
Feb 09, 2017 - Sure McD’s has always had small, medium, and large fries, and small, medium and large drinks. These are classic good, better, best pricing and portfolio techniques. However, they recently went to good, better, best for the most classic of all McDonald’s sandwiches: the Big Mac. They are introducing the Mac Jr, a Big Mac with only one beef patty. (In case you didn’t know, a Big Mac is two all-beef patties, special sauce, lettuce, cheese, pickles and onions on a sesame seed bun.) They are also introducing the Grand Mac which has two bigger patties of meat. Like most companies, McDonald’s hasn’t shared their reasoning behind this, but let’s see if we can make sense of it. First, the Big Mac is the iconic McD burger. The special sauce really is unique. (Full disclosure: I worked at McDonald’s as a burger flipper almost 40 years ago. It’s probably why I use so many McD examples.) People used to order a cheeseburger and ask for Mac sauce on it. Other fast-food places don’t offer that sauce, which is good for McD’s. Why would McDonald’s go from offering just a single version of a Big Mac to having a good, better, best (or small, […]
Feb 09, 2017 - Sure McD’s has always had small, medium, and large fries, and small, medium and large drinks. These are classic good, better, best pricing and portfolio techniques. However, they recently went to good, better, best for the most classic of all McDonald’s sandwiches: the Big Mac. They are introducing the Mac Jr, a Big Mac with only one beef patty. (In case you didn’t know, a Big Mac is two all-beef patties, special sauce, lettuce, cheese, pickles and onions on a sesame seed bun.) They are also introducing the Grand Mac which has two bigger patties of meat. Like most companies, McDonald’s hasn’t shared their reasoning behind this, but let’s see if we can make sense of it. First, the Big Mac is the iconic McD burger. The special sauce really is unique. (Full disclosure: I worked at McDonald’s as a burger flipper almost 40 years ago. It’s probably why I use so many McD examples.) People used to order a cheeseburger and ask for Mac sauce on it. Other fast-food places don’t offer that sauce, which is good for McD’s. Why would McDonald’s go from offering just a single version of a Big Mac to having a good, better, best (or small, […]
Blog Post
A Question About Pricing Models
Feb 15, 2017 - “Mark, I was in your pricing class yesterday (I was the obnoxious one wearing a baseball cap) and it was very informative, I learned a lot. “I know you’re very busy, and I apologize for the imposition, but one thing we didn’t go over were different pricing models. For example, in our business we have varied pricing models for our SaaS products. Some are a variable monthly fee based on hospital size (bed count), some are “pay by script” (for retail pharmacies), or a “winners only” pay model (meaning only pay for a script when it is profitable, regardless of total script count). Another common model I’ve seen in the healthcare industry is, “We keep 25 percent of any reimbursement we are able to capture that was missed at the time of claims submission. “One of our biggest challenges before going to market (or sometimes after) is determining the appropriate model to use (even after deciding to go SaaS over traditional software) and I did a cursory search of your blog for strategies on this and I was unable to find any. Thanks, E.” Hi E, Thanks for the kind words and of course I remember you. You may recall […]
Feb 15, 2017 - “Mark, I was in your pricing class yesterday (I was the obnoxious one wearing a baseball cap) and it was very informative, I learned a lot. “I know you’re very busy, and I apologize for the imposition, but one thing we didn’t go over were different pricing models. For example, in our business we have varied pricing models for our SaaS products. Some are a variable monthly fee based on hospital size (bed count), some are “pay by script” (for retail pharmacies), or a “winners only” pay model (meaning only pay for a script when it is profitable, regardless of total script count). Another common model I’ve seen in the healthcare industry is, “We keep 25 percent of any reimbursement we are able to capture that was missed at the time of claims submission. “One of our biggest challenges before going to market (or sometimes after) is determining the appropriate model to use (even after deciding to go SaaS over traditional software) and I did a cursory search of your blog for strategies on this and I was unable to find any. Thanks, E.” Hi E, Thanks for the kind words and of course I remember you. You may recall […]
Blog Post
When You Should Use Cost-Plus Pricing
Mar 08, 2017 -

So many companies use cost-plus pricing. I’d venture to say that almost all hardware companies and services companies with hard direct costs use some form of cost-plus pricing. Yet, pricing people know this is wrong. It leaves money on the table. In the majority of situations, cost-plus pricing makes no sense.

Mar 08, 2017 -

So many companies use cost-plus pricing. I’d venture to say that almost all hardware companies and services companies with hard direct costs use some form of cost-plus pricing. Yet, pricing people know this is wrong. It leaves money on the table. In the majority of situations, cost-plus pricing makes no sense.

Blog Post
Losing on Price
Mar 16, 2017 - Ask a salesperson why he lost a deal and the answer is often “price.” Let’s stipulate that is true. It is still only half the story. If you attach enough gold bullion to your product, the value would increase to the point where the customer would pay your price. When you lose on price, it really means that you didn’t deliver enough value for the price. Both sides matter. To avoid losing, you can do two things: lower your price or increase the value you deliver. Lowering your price is usually a horrible idea, so how can you increase value? Create more value by improving your product. You can add more capability, more features, more services. However, these additions must be valued by your market or you still won’t win at your price. Talk to your market to be certain what you are adding matters to them. Communicate your value better. You could have the best product in the world, but if your market doesn’t know it, you won’t get paid for it. Communicating value is the responsibility of both marketing and sales. Marketing communicates to a market, sales should be customizing that communication to individual buyers. If you do […]
Mar 16, 2017 - Ask a salesperson why he lost a deal and the answer is often “price.” Let’s stipulate that is true. It is still only half the story. If you attach enough gold bullion to your product, the value would increase to the point where the customer would pay your price. When you lose on price, it really means that you didn’t deliver enough value for the price. Both sides matter. To avoid losing, you can do two things: lower your price or increase the value you deliver. Lowering your price is usually a horrible idea, so how can you increase value? Create more value by improving your product. You can add more capability, more features, more services. However, these additions must be valued by your market or you still won’t win at your price. Talk to your market to be certain what you are adding matters to them. Communicate your value better. You could have the best product in the world, but if your market doesn’t know it, you won’t get paid for it. Communicating value is the responsibility of both marketing and sales. Marketing communicates to a market, sales should be customizing that communication to individual buyers. If you do […]
Blog Post
Can Price Be a Distinctive Competency?
May 04, 2017 - A distinctive competency is something you are really good at and your competition isn’t. Think of this as a unique core...
May 04, 2017 - A distinctive competency is something you are really good at and your competition isn’t. Think of this as a unique core...
Blog Post
Becoming a Pricing Expert
Apr 13, 2017 - A question from a reader: Just to introduce myself, I started my career in a cost consultancy startup that was involved in...
Apr 13, 2017 - A question from a reader: Just to introduce myself, I started my career in a cost consultancy startup that was involved in...
Blog Post
Managing a Pricing Portfolio
Jun 01, 2017 - Hi Mark, I’ve been a pricing practitioner for many years now, with experience in several industries on the individual contributor and manager...
Jun 01, 2017 - Hi Mark, I’ve been a pricing practitioner for many years now, with experience in several industries on the individual contributor and manager...
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