By Parmalee Eastman, EastSight Consulting, info@eastsightconsulting.com,
originally published in Issue 18 of SCIP.online
Summary: Understanding competitors' pricing is key to increase
your chances of winning business while not bidding significantly
under the competitor. There is rarely just one price for a product
or service, and pricing is fluid -- it changes with the needs of
the competitor and the economy. Parmelee Eastman provides specific
steps to identify the competitive pricing component, locate information
sources, and determine price ranges.
Price is not the only reason why a customer selects a certain business
product or service. However, it is increasingly important in these
tough times to price precisely to increase your chances of winning
business while not bidding significantly under the competition.
Prices for consumer items are easy to obtain since retailers and web
sites clearly mark the cost. But you can not walk into a store or surf
the web for the prices for many business products and services. They
are not published, but that does not mean that they are confidential
and cannot be obtained.
Street pricing is complex
The manufacturer's list price or MLP is often a starting point for
pricing negotiations with customers rather than a fixed price. Most
companies offer a sliding scale of discounts depending on the annual
volume or size of the deal. Others price opportunistically, discounting
heavily if the sales unit needs the business at the end of the quarter.
Complex products and services with multiple functions may have creative
names that can be quite effective from a marketing perspective, but
are not descriptive of the product or service fundamentals. The first
step is to obtain a description of competitive offerings, then ask
if the products and services are really comparable.
Titles and labels themselves can be meaningless. Does the software
really offer the same features and functions? Do the programmers have
the same years of experience and certifications? What is included in
the package with the hardware-warranty, installation, on-site support?
These are just some of the questions that need to clarified to insure
a valid comparison.
The next step in determining competitive pricing is to develop your
list of information contacts from secondary or primary sources. Some
secondary sources contain names and titles of individuals who can be
contacted in the primary research phase of your effort.
Internal sources
Check to see what information you already have internally. What do
your sales people know about competitive pricing at their accounts?
While sales people are sensitive about losing business (I know-I was
once a salesperson), they are knowledgeable about their customers'
buying criteria and the dynamics of each deal. Does your company track
lost business? Such a database would give you the names of accounts
and decision makers for you to contact.
Secondary sources
Conduct a secondary literature search to identify purchasers and users
of competitive products. Use terms such as "purchaser" or "user." Some
information on prices will be in the literature, but in addition, the
literature can contain names of companies and individuals that can
be contacted to ask about pricing.
Do your competitors sell to the Federal Government? Use a Freedom
of Information Act (FOIA) request to obtain copies of contracts won
by your competition. Be aware that FOIA requests can take months to
process, some companies justify exemptions to releasing the information,
and the products or services may not be comparable.
Have you examined your competitors' web sites for success stories
and press releases of wins? Some stories contain quotes from decision
makers who can be contacted for information. If the individual quoted
has left, ask for his or her replacement.
Primary research
Pricing questions are rarely answered just through secondary sources.
Your legal department will not let you contact your competition directly
on pricing, but you can speak with people on the other side of the
transaction: the buyers. Other SCIP articles have examined primary
research techniques so I will only include tips on pricing research.
Why will they speak with you? Two reasons; first they want to know
if they received a good deal. Secondly, they often think (correctly)
that providing information will help them get a better price in the
future. They want to encourage competition.
Primary research is delicate. You need to establish rapport on the
phone and understand the context of the deal before you can ask about
pricing:
- Was this deal a renewal?
- Was the product installed elsewhere in the company?
- Was the decision maker a former employee of the vendor?
Understanding these issues will help you understand the context of
the pricing. Individuals do not make pricing decisions independent
of other product characteristics or personal needs.
No one price
Often, there is not one single price for a product or service. You
may get a range for pricing instead of trying to identify one single
valid price. I was once told that a company used 60 factors to determine
its price on any individual Information Technology services deal.
Each sales deal is different and a single conversation may yield useful,
but not comprehensive information. You need a minimum of three data
sets per competitor to determine if a pricing pattern is emerging.
Successful projects rarely depend on a single source; intelligence
is derived from multiple sources that all contribute a piece of the
puzzle.
Pricing is fluid-it changes with the needs of the competitor, the
sales organization, and the economy. For example, I did a project recently
on software pricing. The volume discount levels had changed little
from last year, but the companies were including installation and services
not included previously.
If you do not track wins and losses, set up a database to do so. Ask
your salespeople and other sources if you can contact them again for
more information. You will want to establish a regular schedule for
checking on street pricing. With an understanding of current street
pricing and an on-going program to monitor actual pricing, you will
be prepared to maximize your revenue from your opportunities.
Background:
Parmelee Eastman founded EastSight Consulting (www.eastsightconsulting.com)
in 2001 to help companies increase revenue and lower costs by more
effective utilization of external information in internal decision
making processes. EastSight Consulting clients range from start-ups
to Fortune 500 companies. Prior to founding EastSight, she was the
vice president of the global technology and communications practice
at Fuld & Company and employed for 16 years at Digital Equipment
Corporation. She holds a B.A. from Wellesley College and an M.B.A.
from the Harvard Business School. Parmelee lives in Wellesley, MA with
her two daughters and enjoys outdoor activities. She can be reached
at info@eastsightconsulting.com.
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