Editor’s Note: Today’s blog was developed by two authors, Vern Lennon and Stephan Liozu.
Pricing continues to make inroads in both large organizations and mid-sized companies. It’s good we’ve left the time when pricing was hidden under finance or totally ignored in Fortune 500 companies. Thanks to the help from the Professional Pricing Society, from pricing optimization software companies such as PROS and from consulting firms, we see more and more companies embrace pricing as a science.
Despite this good news, we know thousands of companies, entire industries and armies of managers still ignore pricing as a profitability lever and a full-fledged element of the marketing mix. Our research shows that most of these are mid-market companies. But what exactly is in the mid-sized market? How do you define it? What are the specific pricing needs of these companies?
A recent study by University of South Florida reported the vast opportunity for pricing is in the small- and mid-sized market (see chart below). There are more than 350,000 companies listed in this category, and chances are that pricing is under-represented, under-utilized and neglected. Our 2010 qualitative research with 15 small and medium industrial firms showed that 11 out of 15 firms didn’t have a pricing function, didn’t formally manage pricing; and applied “bricolage” when dealing with pricing issues.
In essence, the opportunity offers both excitement and challenges. The challenge is to reach these companies that haven’t started a pricing initiative and to convince them — one by one — to embark on the pricing revolution. The real challenge is somewhere else though. These companies do have a very different set of needs. It requires a different sales technique than a traditional enterprise sales approach. They respond to different factors and display unique buying behaviors.
In the mind map below, we list eight of these unique needs. Some are standard and could be applied to larger firms as well: Collaborative, focused, flexible and responsive. Others are rather specific to the nature of these firms. Let’s take a look.
A critical element of the pricing offering to mid-sized companies is scalability. Because of their size — or whether they’re divisions or stand-alone companies — they may prefer to implement pricing solutions in modules or “chunks” and welcome a scalable offering. Scalability also means a cost spread over a potentially longer period of time, thus avoiding a one-time profit impact that includes operational expenses and depreciations. A scalable pricing solution might be required for availability-on-demand when the business and its people are ready: on-demand analytics, on-demand training and on-demand support.
A second critical element is the virtual dimension of the offering. To avoid large implementations, mid-sized firms may prefer cloud-based software using a SaaS platform. Recent successes by SaaS-based software companies indicate the future of pricing may also be in this growing technology segment. Virtual means, therefore, web-based, easy-to-use, and without the requirement of a massive implementation with potentially expensive consultants. Last but not least, the pricing solution needs to be right-sized. The scale and scope of these offerings should be realistic, stripped of unnecessary fixed costs and demonstrate a real impact to mid-sized firms’ bottom line.
Current mid-market pricing software and price consulting offerings must adapt to the nature and needs of the mid-market. It is worth the investments in specific methodologies, approaches, technologies and business models.
Be bold! Join the pricing revolution and embark on the journey to pricing excellence!