The word “mojo” derives from an African language and relates to magic and spells to generate luck and power. In today’s language, the word still refers to a source of vigor, energy, sexual potency and power. An entire Austin Powers movie was devoted to lost mojo and the desperate search to find it. Austin Powers ultimately discovers his mojo is within and that he had access to it all along – groovy, baby! So what does this have to do with pricing? I believe many companies can ultimately find their pricing mojo from within and they have access to it all along. I will lay out a few pointers, provide a map, and help you find your pricing mojo – yeah, baby!
The first stop along our journey is to ask “what’s the most powerful word in pricing?” Nope, it’s not value or customer. Not even profit or revenue. It’s the word NO. Not because you want to be the proverbial jerk that people ultimately can’t work with – I do know some folks that fall into this category and you don’t want to be like them in pricing. However, if you can’t say NO to a deal, you honestly don’t have a strategy because every deal looks like a good deal. Lacking the power to say no means you will end up losing your financial shirt in negotiations. The lesson here is that the first step in finding your pricing mojo is to define your pricing strategy. If I were to ask you to describe the pricing strategy at your company, would you be able to do it? If you’re searching for words right about now, you don’t have a price strategy. That’s ok. I’ve been there before. So, that’s the starting point. Now, let’s go define your pricing strategy.
Pricing strategy develops from understanding the target customer, the competitive set, and your unique selling point. When I first worked in data storage, our gross margins were barely above water. After extensive discussions on the matter, we decided on a fast follower, neutral price strategy approach. We were the #2 player and wanted to compete peacefully on price. Proactively driving prices down to steal share in a thin margin and less differentiated mature market is a certain recipe for disaster. We avoided moving prices down whenever possible, but if the market leader moved, we had no choice but to do the same because of the nature of our business. (For the sake of time and to stay on topic, we won’t get into here.) On the flip side, we were not going to respond to price moves by third tier manufacturers. Their strategy is to undercut us no matter what we do. They are always going to calibrate prices below ours. AND THE RESULTS, we took a business from about a 5% GM to over 20% GM in about a year, attaining record profit dollars and profit percentages in the history of the business. Having a strategy gave us focus on how we were going to execute it – without a strategy, execution is aimless.
In order to support a pricing strategy, you need to define pricing rules and policies. These are your decision guardrails. While you might not be able to follow this 100% of the time, it provides structured guidance. An example of a price rule might be when going against a particular competitor, the price response will be to sustain an xx% premium with a floor no lower than $yy. The floor price can be used under the following conditions of . . . These rules and policies are set to protect the offering structure of your products and services. They are also there to guard against negotiation games that procurement might throw at you. Finally, you have to go get buy-in from executives on the strategy, rules and policies. This will create the proper environment for the entire organization. Without this buy-in, all your hard work might get undermined by the sales organization – when the deal gets escalated. This is a critical piece to turn strategy into effective execution.
In summary, finding your pricing mojo does come from within. There are three things you must do: (1) Create a pricing strategy, (2) Define supporting price rules and policies, and (3) Secure alignment. Pricing mojo allows you to say NO with authority, purpose and rationale, all while being respected. It will allow you to start improving the pricing culture of your company and deliver breakthrough results.
About the Author: David Mok
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David Mok (Harvard Business School, SMM 2014) is a global marketing executive, pricing champion & thought leader based in Boston, USA. David is a high-energy influential leader igniting execution excellence with strategic & innovative mindset.
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