Does that sound like an interesting discussion to you? Trust me, it was! Early this morning, I got into a conversation with two marketers I know only from social media (and that we have connections in common). It started with someone poking fun (nay, mocking) a marketing plan template. One aspect of that template was the SWOT analysis, and there was a lot of talk as to whether the SWOT was no longer relevant.
Now Steve and I are both fans of frameworks. They give teams a common language to approach an analysis, so you can stop disagreeing about how to look at what's going on, and simply look at what's going on. They also provide constraints: don't bother finding data that doesn't answer the questions required for that framework. (You can always use that data for a different framework. Just don't force-fit stuff where it doesn't belong).
On that note, we also had a sidebar on templates that are created by head office, your boss, or some other wise guy, that (a) requires data that isn't available in your branch-plant country, or (b) solves a problem that isn't relevant to your context, but rolls up to a bigger template that serves someone else, somewhere else. Don't do this to people. But if it's been done to you, the best way to come up with numbers for the missing links is to triangulate.
Anyway, I digress. I stood up in defense of the SWOT, not because I think it is always the best framework, but because I believe it is a mis-maligned framework, and that often what doesn't work about it are two things: (a) teams try to stog too much into their SWOT, and (b) they've been mis-taught how to use it best. So here goes:
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It's meant to help you think about where you are now, and where you might go (and what could happen to you along the way). The first error teams make, is to mix up Strengths and Opportunities. Or Weaknesses and Threats. It's about looking through the right lens.
Strengths and Weaknesses are about you (and by that I mean your business, your product, your team). What strengths does your product have? What weaknesses? Are you with me so far? These are internal factors. Opportunities and Threats exist once you leave the safe harbour for open water (or open your front door and go outside). Opportunities are things you can achieve or places you can go. And threats don't come from inside, they come from the outside factors. Yes, if your culture is broken, you've got an issue. But that's something you need to fix within your own house, not something that's outside of your control or might impact you whether you want it to, or not. Got it? Excellent. I knew you would.
All this is to say, frameworks are one of the best ways to get people on the same page, fast, to make better decisions. They also can be one of the worst kind of hammers to wield when you've convinced yourself that everything is a nail. So proceed with caution. (And if you'd like to talk about which frameworks to use to answer your burning questions, let's talk).
I'm Megann Willson, and I'm one of the Partners here at PANOPTIKA. We help our clients make #betterdecisions, sometimes using frameworks. You can find us on LinkedIn, Facebook, or Twitter. And for insights delivered direct to your inbox on Fridays, you can sign up using the orange button, below.
What you believe your product is worth, isn't always what the customer wants to pay, and especially if they're a multinational corporation, and you're...not.
It's often tempting for service businesses to think of their pricing as simple units of money by time, for example, and that's what the purchasing people would like to believe. It makes it easy for them. And to be sure, someone will always price their services that way. But in a knowledge-based business, clients are also paying for your experience - your ability to understand the situation from a specific perspective, or as Steve Pulver, the speaker at last night's #Medventions session at Sunnybrook Health Sciences Centre described it, your ability to "see around corners". That's why you need to build a value story that they can understand. You need to avoid the price spiral. It's the same thing if you are building a complex new technology, or a medication. "Cost plus" is not the right model for either of those things.
So how do you decide how to set your price? There are a few simple rules of thumb. You do still need to start with costs. What does it cost to produce the product or service (raw materials, manufacturing, time researching, meeting, writing reports)? What are your overheads or fixed costs (rent, salaries, keeping the lights on)? Beyond that, you will need to look at competitors. Their pricing will give you a good idea of what the market will bear, unless your aim is to be much cheaper (because you've found a way to do that) or faster (there should be a premium for that) or higher quality (maybe, just maybe the customer will pay for that). Those are all good places to start, if there's a known benchmark. What if there's not? What if you're doing (or you've invented or discovered) something completely new?
Then you need to start with the costs, above, and begin to think more abstractly about your value proposition, what the product is worth, and what levers you can work with. If you have a medical device, for example, start by thinking about other similar medical problems that are addressed in terms of the incidence and prevalence of the issue, the number of patients impacted, the cost of not treating (the "opportunity cost"). You'll need to use some triangulation if there isn't readily available data. Then the real work begins.
Consider these questions when you're setting your price, and thinking about what customers will pay...
How serious is the pain? Is it more like an annoying itch, or is it a raging migraine? Thinking about how serious the pain is, will allow you to think about how much the customer will pay to solve it.
What is the consequence of not solving the problem? (How big is the risk to the customer? If it's a medical problem, can it be fatal, or permanently disabling?)
How far in the future will the consequence occur? (It's really hard to get someone young to understand why they might want to pay for life insurance)
And lastly, how often do they have the pain? If it's episodic, occurring at regular intervals, but never really going away, they may not pay as much (in between, they can live with it). If it's chronic and severe at the same time, they'll keep paying and paying for relief (in which case, maybe a subscription model is a good idea). And if it might only occur once - but the risks of not solving it are extreme, you need to make all your money at once, and they just may be willing to pay a premium.
It's not always dollars by time. Pricing is a much more complex story than that. But it's worth spending time to figure out. In fact, your business depends on it.
I'm Megann Willson and I'm one of the Partners here at PANOPTIKA. We help our customers in complex businesses to see everything they need to know to make better decisions, so they can build and grow. You can also find us on LinkedIn, Twitter, and Facebook. Or you can sign up for regular news you can use, with the handy button below.
Megann and Steve, Partners in PANOPTIKA, are working for our clients every day to help them see everything they need to know to make better decisions in their complex business environment.
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