Sales and pricing decisions

Recently I was responding to the question about whether it is normal for sales managers to have little or no decision making power about pricing. My answer was a "Yes, but ... sales has key input regarding pricing".

It is normal for the sales manager to have little or no decision power regarding pricing. The key word here is 'decision'. Sales managers are the closest to the customers (or subeset of customers) and hence (at least) a segment of the market. As such they have the power and responsibility to bring the market and customer feedback back to the decision maker(s) - usually the Product Manager. And a good product manager should be always seeking input from the market and listening closely to the logic and your input the sales team.

Let us examine why this is so, and more importantly why should this be so - a product is a vehicle through which a company can deliver value to its customer, and in exchange for the package of benefits this product provides, capture value through price. In some cases, the pricing strategy needs to be balanced across the entire market - not just a few customers, or a market segment. And the pricing is determined based on the company's perspective on the value it is delivering to the customer.

Sales teams are motivated by volume and overall revenue, and therefore it is inherently difficult for the sales team to understand the overall implication of a price on the company's strategy. Usually sales team members are not involved in costing, overall business strategy, the R&D investment (if any), and the branding / positioning. Therefore, it would be counter-productive for the sales team to decide on pricing.

In the same vein it would be suicidal for a company and a product manager not to be taking note of input from the field coming in through the sales team - as then, it leads to a divergence of a company's own perspective of the value its products bring to the market, and the customer's perspective on the value these products have. And in the end the customer's always win.

Simple example on why sales team should not be making a decision about pricing ...

Let's say the company in question is a car maker (BMW?) and it is aiming a model at a particular high-end segment of the market. They have a great brand, and it demands a price-premium. The sales team comes back and advices that the price is too high, and that by lowering the pricing they could capture a greater segment of the market. Should the answer be yes? Obviously not without doing the proper analysis:
1. Does this downplay the company's entire brand position?
2. Does the revenue gain at least offset the margin loss?
3. Is manufacturing, operations and service groups ready for the shift?
4. Is this really aligned with the company's strategic objectives?
5. What is the trend in the market (i.e. demographics, purchasing power etc.)?
6. Who is coming back with the input (is it the sales managers from key market segments? Is it the sales manager from a small tactical ‘fleet sales’ group?)?
… and after analyzing all this inputs, chances are, the answer will be a “No”.

Launch new product vs revamping an older one (from LinkedIn Q&A)

A tough and profound decision. The key factors in play are:

1. Industry characteristics (some industries are notoriously slow to adopt a new product)
2. Product brand (has the product been branded? Is there a platform brand it rides on? Does the brand hold good equity with customers?)
3. Related to 2 (above) but different - are you targeting another different segment of the market with this product - a segment that values different features / characteristics? If so, it may be better to launch a new product - with completely differentiated value proposition.
4. What extra investment will the new launch take above and beyond the revamped product?

Some examples:
Example 1: Product A has been in the market and qualified for a while, but has bad quality perception. A new upscale product has been designed. I would launch this as a new product even if it shares a lot of the older products characteristics, if I am launching into the same market. If I am launching into a new market segment where there is some knowledge of the older product, but none of the negative imagery, it may be prudent to leverage the older brand.
Example 2: Product B has been launched into a market as a simple, cost effective solution. The company is now contemplating an upscale fully featured much higher priced product. I would (other factors being equal) prefer to launch this as a new premium product with differentiated marketing messages and a clearly distinctive look.

Customers vs Technology

Nintendo Wii vs Sony PS3

We all know who won this round. Microsoft is planning to climb into the fray a year from now. But, the clear winner is Wii.

I call it the triumph of paying attention to customers vs paying attention to technology.

But then, I am not a gamer. And I have not played on any of the three platforms.

Strategic Choices & Execution

The airline and the pharmaceutical industries are notorious for the need for long term investment choices. I have wondered whether this is really true. Every industry seems to do this in different ways. However, it cannot be denied that these tow industries have a need to make very clear choices very early and enjoy / suffer consequences of such choices.

Boeing vs Airbus

There is a lot of writing about the much touted choices adopted by Airbus and Boeing. In reality, neither of them really made any revolutionary choices, instead choosing to fill out their product portfolio.

Airbus really did not have a large carrier platform (Boeing had their 787 Jumbo), hence the choice to design and build the A380 - how nice to build something bigger and (Airbus thought) better than the Americans while at it.

Boeing meanwhile took its own path and then was forced to change it. In the wake of 9/11, Boeing was able to effect a remarkable change - it rapidly adapted to the new environment (in more ways than one) and rolled out a long range flight platform with advanced lighter materials that allowed better mileage as well as a more comfortable cabin - with greater cabin pressure.

Ostensibly the battle between these two giants are between the hub-and-spoke model and the point-to-point model. One wonders if that is really so simple. The air network of the future will be a jumbled combination of both - what is a mutliple hub model with lots of point-to-point flights?

The jury is still out on which strategy will "win", or if there really is a market for both. The key learning is that good execution and adaptibility wins every time. A lesson right out of the pages of that age-old phenomenon called evolution. Business has a lot to learn from biology here. Boeing clearly was the one to execute faster, and more efficiently, while being flexible enough to quikly react to the market realities that emerged. While Airbus was beset with leadership changes, politicking and compromises that doled out parcels of engineering design by national interests. In short an execution nightmare that has not yet played out completely. Their rollout seems still five years away. While the first 787 Dreamliners rolled out last Sunday, July 15 2007.

So take this lesson to heart all ye business managers. Plan, execute, and listen carefully to market be ready to change your plan and execute again. The rest may not matter as much.