Friday, March 10, 2006

angst: chinese menu pricing

The tao of pricing is difficult, and full of suffering.

The Tao Te Ching doesn't use the word suffering once - even though it offers many cures to suffering. A thorough examination reveals it doesn't talk about pricing either.

So naturally, I went looking for cures to pricing-related suffering.

Practice not-doing, and everything will fall into place. (Chapter 3)

OK, let's start here. There is a powerful temptation to create complex pricing schemes that requre an advanced degree in mathematics and business theory. Why? Because the people who do pricing need to prove how smart they are, by gum. The worst example of this was with a company I worked for that did very little in the way of unit sales (maybe 10 units per year), but gosh, we had a world-class pricing model with more flexibility than a Cirque du Soleil contortionist.

I always figured, worry first about getting the product into the hands of customers, learn about how customers want to buy it, then find a pricing model that makes this happen. That's a start.

Chase after money and security and your heart will never unclench. (Chapter 9)

"But you're giving it away!" cry the sales guys. "We need to recoup our investment!" scream the VCs. "You'll destroy our business model!" holler the senior managers. Pricing should not be an impediment to sales if you have correctly communicated the value of our product and if the customer has agreed. Pricing must align with how your customers acknowledge value, not with what you presume that value to be. Making this distinction is difficult, but necessary, and requires huge balls on your part.

Somehow the smarty-pants way up at the top of the food chain fail to realize that 100% of zero dollars is zero. Pricing is a realty-based exercise, not a hope-based one, regardless of what the valuation needs to be for the next round.

Do you have the patience to wait till your mud settles and the water is clear? Can you remain unmoving till the right action arises by itself? (Chapter 15)

There is huge pressure to change your pricing if the market doesn't respond to your product out of the gate. But you need to ask yourself if you've fired on all cylinders in marketing, sales, advertising, etc. What have your competitors done in response to your pricing? Did they move?

Whoever relies on the Tao in governing men doesn't try to force issues or defeat enemies by force of arms. For every force there is a counterforce. Violence, even well intentioned, always rebounds upon oneself. The Master does his job and then stops. He understands that the universe is forever out of control, and that trying to dominate events goes against the current of the Tao. (Chapter 30)

Over time, under pressure from all angles, you may find yourself left with pricing that looks like a bad Chinese menu - too many options, too many pieces, too many combinations. Then you'll start suffering. Turning around, going the other way, requires bravery. So be brave.

No comments: