Question

Topic: Strategy

Pricing: Full, Discount, Or Free Add-on

Posted by dgunther on 250 Points
I work as a sales manager in a weather-tracking technology service company that operates on subscriptions to our services. Our primary customers are roofing/contracting companies who use our coordinated weather data to channel their efforts in the wake of a hail storm. We're looking to release a new service which can:
A) Build upon the current framework of our present one for existing customers
B) Be a standalone app and service that roofers outside of our main hail tracking functionality can use to revolutionize their canvassing efforts (going door to door to find customers)

Without going into too much detail, our company does not have anybody who heads up marketing. I've taken a few classes and know some basics and I have a degree in psychology, which puts me miles ahead of the CEO and others in the company regarding marketing practices, but none of use is well-versed in this area. Any pricing we've generated thus far has been relatively arbitrary rather than calculated based on costs and other factors from what I can tell. In fact, our service is priced at $250/month for everything when competitors itemize and have different focuses, such as rough canvassing CRMs and contact information for homeowners. Our pricing is not far from them.

Our CEO is tentatively pricing the new service which I'll refer to as 'hot stuff' at about $99/month because it can help the salespeople for these roofing companies tremendously increase their selling power, and I think we will learn much more as we probe the market for a proper price approximation. However, because he's desperate and knows nothing about sales or marketing, he wants to give away 5 free subscriptions to this 'hot stuff' service to every subscriber to our service. That's $500 for free. On a $250 subscription. He thinks this will drum up business, but I think he's irreparably devaluing the new service and the old, decreasing customers' perceived trustworthiness of our company, showing them our lack of confidence in what we've developed, and, most importantly, demolishing our profits.

He thinks, "Well, it's a technology service. It doesn't cost anything to give it to them because we're not manufacturing anything, so it's not a big deal."

Can you all please share your thoughts on the best practices in such a situation? And if I need to have a serious conversation with him to set straight that his strategy will lead to ruin, do you have any experiences that would help me understand the best way to engage in such a conversation that would successfully convince this hard-headed individual that his "experiences" might be incorrectly derived?

Thank you for your help, anyone who takes the time to respond.

Dane
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RESPONSES

  • Posted by mgoodman on Accepted
    I've consulted extensively on pricing strategy in both B2B and B2C categories, and what you are experiencing is very familiar. On the surface it sure seems that your view is correct ... though I'd need more information before I'd ever feel comfortable going on the record with that point of view. (I actually created and presented a seminar for a client with a similar dilemma.)

    Many non-marketers are so focused on generating volume (especially on a launch) that they totally ignore profitability and longer-term brand image/positioning. These longer-range considerations ultimately prove to be more important to the company, but they seem far off in the moment.

    The best you can do is present your point of view clearly and with numbers for a few scenarios (pro forma examples). In the end you may win out, or you may not. That's really all you can do. Of course you can always hire an outside consultant to do the same thing if you believe an outside expert will command more respect/have greater credibility.

    ==========

    A common adage among marketers who specialize in pricing strategy: Anything that's free is worth what you pay for it.
  • Posted by Jay Hamilton-Roth on Accepted
    It sounds like your CEO is thinking about things backwards. He's thinking about HIS cost of the offer vs. the CUSTOMER'S value of the offer. If he wants to give it away, then raise the price substantially (for the first one) or make it a contest (submit your contact info for a chance to win a free year's us - so you build your sales database). Or add tracking information to the free app to learn how the customers are deploying it (where it's used, etc.).
  • Posted on Accepted
    My Accountant always tells me that discounting is bad, both in the short term and the longer term. His definition of a discount is that you are just giving money away that you will never, ever get back. Both the internet-based companies & the bricks & mortar based companies are littered with the corpses of CEOs who implemented a program for a short-term gain based on improbable (read 'dodgy') statistics. From your internal corporate position, rather than trying to take-on the CEO head-to-head, perhaps you would be better served to just stress the difficulties and possible adverse outcomes of the CEO's strategy and get the CEO to retain an experienced consultant like Michael Goodman (whose comments are above) to give your company some practical expertise based on historical reality situations.

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