Traditional vs. Emerging Thoughts on Pricing

In the 1990s, we were led by the process methodologies of Lean, Theory of Constraints and Six Sigma. Better, Faster, Cheaper was the mantra. The goal was to gain a disproportionate advantage by leveraging internal resources to their fullest advantage. Many of us are finding that faster, better, cheaper is not the game changer that it once was. Not only do we have to improve, but we have to improve at a faster rate than our competition. Ref: Is Lean and Six Sigma a waste of time?

Typical pricing is based on research, focus groups, surveys, statistical modeling, and other techniques to get a better understanding of customers identifying trends, costumer preferences, and evaluate the relative strength of competitors’ positions. Organizations also organize consumers into segments that enable them to efficiently address consumer needs. The further you can define your segments, the more it is perceived as a competitive advantage. However, organizations can no longer feed products to customers, Kill the Sales and Marketing Funnel. Customers have the ability to access resources and information comparable to their suppliers and choose suppliers by their own definition of value and how that value should be created.

A focus on control and ownership of pricing is giving way to the importance of shared outcomes with customers and suppliers. Ownership is not as important as the way you influence resource allocation within the network. “The goal of the emerging company is not to own all the resources but to influence how resources are allocated by providing intellectual leadership for the entire network. The co-creation process also challenges the assumption that only the firm’s aspirations matter. Every participant in the network collaborates in value creation and competes in value” (1).

Traditional (T) versus Emerging (E) thought:

  • Unit of Analysis: (T) Organization vs. (E) Collaborative Network
  • Basis for Value: (T) Products/Services & Features/Benefits vs. (E) Co-created experiences and Value in Use (SD Logic)
  • Interaction: (T) Transactional based and goal to deliver faster, better, cheaper vs. (E) Series of experiences and goal to keep the game evolving
  • Infrastructure: (T) Limited by physical, financial and internal knowledge vs. (E) Access to resources through external knowledge and networks
  • Boundaries: (T) Limited by features and benefits offered vs. (E) Progressing through knowledge sharing

As we have moved into the Customer Experience Economy and as many feel we are at the threshold of the User Experience Economy. As a result, we have seen the rapid expansion of Design Thinking, Service Design and Lean Agile type methodologies gain traction. Service Design in my thinking being firmly rooted in Service Dominant Logic (SD-Logic) is the most applicable to the area of Sales and Marketing.

SD-Logic use of co-creation of value pushes the perspective on all areas of business to include pricing. Why should pricing be limited to what is available within the organization and their supplier network? Could your pricing structure access your customer communities as well? Organizing to access pricing from an extended network of suppliers, partners and customers to include knowledge, infrastructure, and financial capacity—can significantly expand the notion of available pricing structures.

If we view pricing as an outcome and value from the use of our product or service (SD Logic), should value not be based on the price of the service that the customer receives and our level of participation? Should Net 30 terms be replaced by a co-created funding process that allows for shared risks and greater rewards over the lifetime of the product? Can we co-create pricing with a customer? Are customers already doing it for us?

P.S. Would that not force product/services to strip away all features and benefits that don’t deliver on the needs of the customer? We now receive a “basic” smart phone and only add apps as needed. Realistically, would your life be simpler without every product you own being intelligent?

Book Resources for this blog:
The Future of Competition: Co-Creating Unique Value With Customers
The Service-Dominant Logic of Marketing

Related Information:
Lean needs Marketing, more than Marketing needs Lean!
Does Lean Marketing deliver what the customer wants?
Do you understand where demand comes from?

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