At the moment, I’m two-thirds of the way through a pricing roadshow for a large business-to-business company that plays in the industrial market. As I travel around talking to their executives across the country, one of the questions most frequently asked by workshop attendees is “How do we know we’re charging the right price?”
Surprisingly, perhaps, a new movie starring Richard Gere (of Pretty Woman, and Primal Fear fame) offers an answer.
In Arbitrage, Richard Gere plays a businessman who is in the process of selling his company. Eventually, the negotiation leads to a one-on-one meeting with his suitor.
Over a meal, they agree on a price. Richard Gere takes the restaurant menu, writes down the agreed price and both parties sign the document.
Gere gets up to leave and asks “What would you have paid?” The buyer replies with a figure much higher than the one just agreed to. The buyer, in turn, asks Gere what price would he have accepted: he replies a price figure much lower than that agreed.
This insight is of no use to the now concluded, one-off transaction. But for leading companies selling products and services day-in and day-out, it is a scenario worth contemplating.
Just as Gere’s character did, company leaders have a tendency to overestimate customers’ price sensitivity, and underestimate their willingness to pay. But the question you should add to every win-loss analysis is: what would you have been prepared to pay? (Win-loss analysis includes an assessment of the opportunity, competition, etc.)
Ask the question enough times, and feed the answers back into your next pitch, quote or contract, and over time leading companies will get closer and closer to charging the perfect price.