Are Competitors Chipping Away at Your Edges?

In good economic times, marketers need to be constantly aware of the competitive forces that put pressure on revenue, share, prices and profits.  That only gets worse in downturns like the current one.  Sellers need to constantly monitor what competitors are doing to and prepare appropriate responses.  3Com builds, among other things, network switches.  That puts them right up against mighty Cisco.  Fortunately, 3Com’s switches are built in partnership with a Chinese firm and are cheaper than Cisco’s. 

 Since customers are under tremendous cost pressure, 3Com President, Ron Sege sees the current downturn as an opportunity to sell more of their cheaper switches.  He knows that cost conscious customers will be more willing to try 3Com’s offering.  And, once they see that the quality is good, they will keep buying them, even after the current recession turns around. 

 Here is a company that is going to benefit from having an offering positioned at the low end of a market and their timing appears to be good.  Mark Burton has spoken about these firms in his blog and in our upcoming newsletter.  The question I’d like to hit on is what should Cisco be doing about another competitor “nibbling at the edges” of their market dominance.

 

First, Cisco is aggressively innovating in areas such as video conferencing to both grow their business and expand their presence in the technology space.  This fits right with our “innovate for growth” concept.  They have and will continue to rely on both internal R & D and acquisitions to accomplish that objective.  Cisco has and continues to do this quite well.

 

Second, and of equal importance, Cisco managers need to make a conscious and strategic decision of how they want to meet 3Com’s move closer to their space.  One thing that they don’t want to do is discount higher value products since that would undermine the higher value position that they dominate.  They do need to decide if they want to ignore 3Com—that will be determined by the relative shares that each holds in the lower value segment and the risk that the higher value segments can deteriorate to lower value offerings.  At some level of share and deterioration, there is a “tipping point” that will show the need for Cisco to develop their own lower value flanking offering.

 

The important point is that successful competitors need to a) continually assess where that point is, b) determine when a segment is there and b) proactively have products and services ready to introduce when they reach it.  Having competitors “nibbling at the edge” of your business is a fact of life in both good and bad times.  The real risk is in the decision how to respond.  It is rarely a good move to respond solely will price.  It is always a good move to be constantly assessing when and how to respond to a “nibbling” competitor and it is usually with a flanking product.

Building Credibility as a Pricing Manager (Director or VP!)

Credibility is a key to success for any manager.  If you aren’t viewed as credible, you won’t be taken seriously and will suffer from a lack of power and control.  You won’t get the resources you need to get the job done.  This is a serious problem if you are a pricing manager.  To execute good pricing strategy and tactics, you’ve got to work across the other functions of the firm.  You’ve got to interact with sales, marketing, product marketing and finance to get the job done.  Without credibility, managers in those functions won’t do the things that need to be done to make pricing a profit powerhouse. 

What breaks my heart about the current economic situation is the number of pricing managers we’ve spoken to who are struggling to improve the profits in their respective firms.  We’ve also spoken to a number of pricing managers who seem to be getting the job done.  They’ve gotten ahead of the need to develop positioning statements for the sales force, they’ve worked with sales and marketing to make sure that excessive goals aren’t driving pricing and profits down.  They’ve worked with senior executives to make sure they aren’t falling prey to desperation pricing–especially at the end of the quarter. 

Pricing managers that aren’t credible are frustrated that people don’t listen to them.  This gets in the way of executing effective pricing.  That’s too bad because effective pricing is what saves jobs during a recession.  Effective pricing focuses on holding on to each an every profit dollar that can be eked out of this struggling global market.  It makes sure we aren’t sacrificing profit dollars for a sales or market share goal.  It makes sure salespeople are selling rather than discounting and it makes sure that our costs are in line and are being viewed properly when it comes to setting price. 

It struck me that what distinguished between those two groups of managers is that the effective pricing managers had credibility in the organization.  When they spoke, people listened.  They were viewed as effective managers who could drive better pricing practices throughout the firm.  No, they weren’t viewed as perfect, but they were viewed by senior and junior executives alike as someone who should be taken seriously for the good of the firm. 

So, that leads me to five bits of advice for pricing managers who are frustrated by your lack of credibility: 

1. Be willing to start small: If you don’t have credibility, you’ll never get the big projects approved.  So, pick something small to do.  And, make sure you do it well and get it done on time.  Work on a better pricing matrix, simplify pricing policies so salespeople understand them, work with a sales team on a big negotiation, or even a small negotiation.  Credibility rests on assurances that you know what you’re doing and can get the job done.  Be willing to start small and grow your successes over time.
2. Work at strategic and tactical levels.  Yes, you need better pricing strategy but without better tactical execution, strategy will never yield benefits for the firm.  So, pick and choose your battles but be willing to pick the fruit of profits where you can reach the branches.  You may need to prove yourself with better execution and tactics before you tackle the larger strategic projects. 
3. Take responsibility for your work and the work of your team.  A lot of managers think that this undermines your power but it actually builds it.  Good leaders take the hits and do better.  It takes a good leader to build a firm’s pricing capabilities.  So, take responsibility for both the problems and the results.
4. Track and talk about small successes.  Don’t expect others to “notice” the results you achieve.  Document your wins and use the insights from those wins to build the “burning platform” for the firm.  If you helped a sales team close a more profitable order, put it on a spreadsheet and report the results to senior executives.  Be willing to start with anecdotes as you build the data for a more compelling story.
5. Speak their language.  As pricing has gotten more specialized, the words we use are getting bigger and more specialized.  Talk about value, beta’s and correlations won’t get you anywhere with salespeople or senior executives.  Salespeople want to know how to close better deals. Senior executives want to know how they are going to get more profits and revenue.  Listen and use the words they use and you’ll become more credible and more effective.

 This is not a complete or exhaustive list but it is a start of things to think about to get the focus you need outside of pricing to get the profit job done in the firm.  Unfortunately, it doesn’t happen over night either.  The credible pricing managers we know have taken years to develop the credibility they need to get the job done.  If you already have credibility, go for it–think big and bold.  If you don’t, try a few of these ideas and you’ll be on the same road that the ones who already have credibility have walked.  It took them time and patience but it did and does work.  Good luck

New Pricing Models in the Clouds

With these turbulent times, most managers are hunkered down, trying to keep costs low and close whatever orders might be available to them.  There’s one more thing to think about—fine-tuning your offering and subsequent pricing model.

There are subtle shifts going on in several industries that point to the need to do that.  The first is in the computing industry.  The move to “cloud computing”.  Cloud computing combines the concept of software as a service–where you purchase the use of the software on a monthly basis rather than as a unique product and computing time versus purchasing the machine.

The recent battle between Oracle and IBM to purchase Sun Microsystems (Oracle won by the way) is the sign that software and computers as a products that are purchased in large chunks might be going the way of the horse and buggy.  The reliability and ubiquity of the internet provides businesses with an opportunity to offload a peripheral piece of the business on companies that can better provide the data, customer contact and infrastructure services.  And, they can get it done for a monthly fee rather than having to invest in the buildings, equipment and application services that they do now.  This is what Ross Perot started back in the 1950’s but now it’s taking the next step to better leverage the internet.

With the new offering of cloud computing, companies will have to adopt new pricing metrics–based on use and application of the computing/software services being provided and identify new value levers to fill out their price sheets.  Without the proper set up of the offering and analysis of the subsequent value, cloud computing will get commoditized.  But with good analysis and execution, cloud computing can be a benefit to sellers and buyers alike as increased efficiencies and broader scale adds lower cost to infrastructures that can only be imagined today.

At the other end of the spectrum but with the same set of issues, I’ve loved looking at what’s happening to the publishing business.  The downturn has tipped many struggling newspapers over the edge.  Those papers have been slow to realize that what they really offer is content not newsprint.  By focusing on the paper rather than the content, the daily rags have destined themselves to the technological scrap heap.  They’ve been slow to evolve their delivery mechanism to take advantage of today’s technology and lifestyles of people.  The exception has been The Wall Street Journal which offers high quality electronic content along with the newspaper.  It gives people a set of alternatives at a reasonable price so they can make the choice based on convenience and value. 

Look also at the book publishing business.  Amazon has broken out ahead of the pack in e-books and is continuing their dominance with improvements to their Kindle which seem to please users.  Yes, their pricing model still doesn’t reflect the increased efficiency of electronic content but give them time and they’ll figure it out.  Compare that to the textbook publishers that continue to ignore that technology has changed the way people want to consume words–especially younger people.  Instead, the publishers focus on writers and big presses (read that as big costs too) when readers increasingly want easy access to cheap and easy to search content.  The publishers that have figured that one out are finding that they are selling 3-4 times as many e-books as they thought and are making a bunch more money.

Now is a great time for struggling managers to start thinking outside the box.  Think about how your customers are changing.  Think about how your delivery methods can change.  Think about how your offering and it’s value can evolve to better meet the needs of the people and the times.  Then, you can spend some time thinking about how to price it all.