The Role of Boards in Pricing – Part 1
A Board of Directors has several important roles, one of which is oversight of the company’s performance. Boards can choose what they want to be involved with, but obviously it makes no sense at all for a board to be involved with the minutia of running a company. Yet, many boards get involved with cybersecurity. Is it minutia or is it critical? It’s minutia until something goes wrong.
If cybersecurity is important enough for boards, then the question comes about, should boards be involved with pricing? At first glance, pricing feels like too much minutia, too deep in the weeds. On the other hand, pricing is a powerful weapon. It is the most powerful tool available to marketing. Pricing is a key indicator of how well the company creates new products. Knowledge of pricing is an amazing indicator that the company understands their product value, their customers and their competitors. A clear understanding of pricing indicates a clear understanding of the business. So yes, Boards should monitor pricing. However, the board should monitor the internal pricing practices and capabilities (not doing pricing).
There are several key areas boards should be questioning. Here are three of them. More will be discussed next week.
- Can we clearly articulate the different market segments, key competitors in each segment and how buyers choose between us and the competition?
This is fundamental to pricing. If a company hasn’t or can’t articulate the market segments and the competitors, it is essentially impossible to price correctly. Companies must be able to articulate the differences and why those differences are important to buyers.
The board shouldn’t go through every product and every market, but have a couple of examples walked through. It’s about monitoring the process, not the outcome.
- Do we have a clear price segmentation strategy? This should be both between market segments and within a market segment.
Charging different customers different prices is a huge opportunity. Between market segments companies usually create different products or product lines to capture the maximum revenue in each segment. Within a market segment there are many techniques that can be used including Good, Better, Best and characteristics of customers and/or transactions.
A board should want to know if their company is thoughtfully pursuing price segmentation.
- Are we building “Will I?” type products?
“Will I?” products are those that don’t have competition in the buyer’s mind. This could be a truly revolutionary product. It could be an option that only we sell. The key is that without clear competition, there is very little price pressure. We can usually get away with charging higher prices.
It takes a concerted effort to create “Will I?” products. They rarely happen by accident. And yet, they are so powerful when it comes to adding profit dollars to the bottom line.
When boards of directors ask these questions, then companies will spend time thinking about them. If companies are already doing this then no harm done. But if they aren’t, which most aren’t, then these are incredibly powerful questions to increase the bottom line of the company.
Next week look for more questions boards should be asking. What questions would you suggest they ask?
Looking for the latest in product and data science? Get our articles, webinars and podcasts.