Pricing is more than just an issue of margin and production costs, but rather a complex set of contextually factors best defined as an outcome. In the podcast, we discussed the outcome of four contextual factors: Situation, Objectives, Perception and Capabilities. Rob Doctors,author of the book Contextual Pricing: The Death of List Price and the New Market Reality, was my guest on the Business901 Podcast last year.
Transcription: Contextual Pricing – The Death of List Price
As a result of several recent conversations I re-visited both Rob’s book and the transcript for a few pointers. I found his information some of the most common sense and as a result practical material on the subject.
Joe: I think it is a mystery for many and I’ll take it really to the basics here for me. It used to be pretty simple that you build a product, you added up the material, the labor in it, and you put your overhead in it, and how much profit you wanted. There was your price. It was that simple. You might put in for discount, distribution and a few other things, but it was what it was.
I think that’s in a world that we lived in where there was excess demand. Now, I always look at that you have to create demand, and one of the ways you create a demand is through pricing strategies. Pricing has taken a whole different context, not to steal from the book. I think to me it has. Am I way off base? Are there any foundational truths to what I’m saying?
Rob: I think there is a foundational truth there. For instance, there was a time when, if your name was Henry Ford and you had just invented the car or made it popular for the first time, you set the price. The Model T Ford was the price you set, and that was good for a good 15 – 20 years. The Model T dominated automobiles. Then Henry set the price, and his attitude was “You can have any color you want as long as it’s black, and you can have any price you want as long it’s the one I’ve set.” That was, of course, a long time ago. Henry got to do that for 20 years.
Apple, of course, released the iPhone, and they didn’t get 20 years of non-competition. There was already competition two years, two and a half years later. For some of their other products, the interval has been even shorter. Now, those have been very profitable brief periods of time, but considering that that’s one of the most innovative new products that we’ve seen in a while, it’s amazing how little price insulation there is.
So, really, the differences between the model of “build it, price it, and they will buy” is the difference between a more competitive world and one that’s less competitive. So that leads to the question, OK, so how do you price them?
Transcription: Contextual Pricing – The Death of List Price
Podcast: The Irrelevancy of List Price
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