I was listening to the Revenue Roundtable that was released a few days ago, featuring my friends and colleagues Mitch Lee, Dave Anderson, and Ben Blaney. They were talking about the volatility of the modern marketplace, and what good companies need to manage and prosper.
My intent is not to refute anything they said, but to add a perspective. The conversation brought to mind one of the most remarkable novels I’ve ever read. It’s Butcher’s Crossing, by John Williams. Some people have called it the archetypal Western novel. If you haven’t read it, well, first…what on earth have you been doing all this time? But also: there might be the tiniest little plot spoiler ahead, so come back to my blog when you’ve finished the book.
In the book, the protagonist, Will Andrews, and a motley crew travel west to hunt bison for their skins. They live minimally and work ferociously to maximize the yield. There are some illuminating descriptions of their routines, and the prose gives the sense of how mechanistic their activities become – in stark contrast to the extreme, rugged beauty of the Colorado mountains.
As the novel comes to a close, we discover that the fundamentals of the market have changed, and the commercial proposition is significantly different.
What’s the Lesson for Today’s Pricing Teams?
It struck me that Andrews and his group would have benefited from a futures contract to protect their enterprise. When an organization enters into a futures contract – whether on the buy side or the sell side – there may be an impact on their profitability versus leaving the organization at the whim of the spot markets. But let’s think about the impact on value pricing.
Imagine an organization does well with a futures contract on the buy side, where competitors are stuck with increasing costs on the spot market. There’s the option of passing the savings on to the customer, garnering goodwill, plus undercutting competitors who have a higher cost base. This could happen, if there isn’t a rigorous value pricing discipline in the organization. The real pitfall is establishing the precedent that the company doesn’t benefit from the ingenuity of its people, the courage of its decisions, and the quality of its execution.
Where contracts are on the sell-side, what is being established is a situation of predictability and certainty for both buyer and seller. That is worth something on both sides. The variables are the length of contract, and the possible deviation from whatever the prevailing market price might be at any point in the agreement period.
As you heard discussed during the Revenue Roundtable, thinking about cost doesn’t mean abandoning value-based pricing. Surety of future price is a value to a customer. I would encourage everyone to get appropriately paid for delivering that value.
Now, all this talk of great works of literature has me reaching for the shelf. I’m thinking Grapes of Wrath, or something by Ian McEwan. Get in touch if you have recommendations for reading that has a pricing slant to it.