No Change in Pricing Strategy Please!!!

After long break I am back to blogging. It has been one full year now after my graduation and I must confess that graph of my intellectual curiosity is exponentially dipping with time. Unlike academic life, Professional life doesn’t give that luxury to experiment, learn & grow. The daily mundane task eats most of the time. But I have somehow continued my habit of reading universities blogs, business magazines etc which have been helpful to stay somewhat abreast with latest studies/researches, news etc.

Few days back I came across very interesting article in recent edition of HBR. Though I hadn’t been the big fan of HBR during MBA days but these days I do glance through the same. As always I found most of the articles uninteresting except one which caught my eyes. I had experienced the same in past one year. I can’t recollect its exact title but it was something like “Why are business leaders not ready to innovate pricing”. During MBA everyone is taught different methods of pricing (cost based, market based, value based etc.). Phew!! One year away from academics really makes it difficult to recollect all the jargons and methodology (Signs of becoming unemployable :( ).But just try your luck to implement one of them in real world and you will face the resistance. The same experience is narrated by the author.

I have read n number of articles and research in recent times on pricing in the recession etc (of course sources includes mother of all gas content Mckinsey & peers) but my success of implementing those or convincing people to do the same in my company is questionable. So why is this resistance? The fact is no one wants to take hard decision. No one wants to lose competitive edge and innovation can never come without risk of failure. Consider for instance IT outsourcing industry which went through the troubled times during recent crisis. Every CEO, CFO in their quarterly results were cautious and have made statements like we are experiencing pricing pressure and it has affected our margins by x basis points. But none of the analysts have asked them what they are doing to counter the same. Every company fears any change in their methodology might cause them to lose customer. But can’t there be win-win situation? There are such methods but companies are just not trying them. Why? Simply because they can get away easily and isn’t the matter of their survival.

Consider other industry where the case is not same-Telecom industry. Tata Teleservices came up with pay per second pricing. Was it good for the industry as such? Perhaps not. Was it good for the company? Questionable. Was it good for the customer? Certainly yes. So what was it that made Tata Teleservices to risk a change in pricing which IT outsourcing industry isn’t ready for? It was question of its existence in competitive market. In absence of any differentiation among players price is final weapon which they had and they used it. I am not here to justify their action or strategy but am providing only the situation when company looks for innovation in pricing.

Other situation when company is ready to experiment with pricing is when there is huge gap with demand and supply and its sellers market. Example of this can be realty pricing in Mumbai wherein developers started charging for built-up and super built up area and then it became norm. But such cases are not going to be more in future given nature of competition that exist today & our integration with global economies.

So what am I trying to suggest by these random examples. Put theory aside. In real world 99% of the company would resist any change in implementation of new pricing methodology until it becomes matter of its survival. This is hard truth. But given such situation arises in your industry would your company be able to suddenly come up with new pricing strategy or just wait for competitor to act and then copy if successful. Which one is good strategy? Latter can also lead to case where no one in industry is ready to risk itself causing industry wide slump (Airline industry). So isn’t it advisable to at least have alternate pricing strategies ready and tested so that it can be implemented any time. Isn’t it good idea to have dedicated team to look at innovative pricing models & be ready with its go to market strategy. I believe some more part of the R&D expense should be spent here. There is enough scope to learn from one industry and replicate in other. Why stick to well defined methodologies learnt in B-school or follow the market leader? Innovation in pricing is need of the hour along with product/service innovation. Corporate world please wake up!!!!