Don't Pick Pricing: Career Advice for the Masses

Friday, June 19, 2015

My education in computer science has left a terrible imprint upon my psyche. Sure I learned many techniques to analyze and process information, but I've also learnt one important business anti-pattern: one should always optimize for the creation of maximum value.

My personal interest in strategic pricing is partly due to an interest in the field of economics, but partly from a realization that few individuals possess even the most basic knowledge required to select the optimal pricing for a digital good. Given the disastrous effects that the wrong pricing can cause, my selection of avocation appeared to be a no-brainer. I had found a field where I could produce significant value while facing minimal competition from others.

Of course, the efficient market hypothesis suggests that such a field couldn't possibly exist. So is there something wrong with pricing as a career field?

Before answering this important question, let's take a look at three diverse, but well-paying jobs: accountant, surgeon and plumber. The three have more than a few traits in common:

1. Each requires specialized knowledge.
2. Each provides real value to his employer.
3. Each can cause significant damage, if performing work improperly.
4. Non-professionals do not believe that they possess the knowledge required to perform the job.
5. The value of the work product is easy to attribute to the individual who performed it.

The first three traits are shared by pricing consultants.

• Proper pricing requires a firm grounding in economic principles, business rules and more than a dash of psychology.
• The correct pricing strategy can yield significantly higher income or stronger strategic gains than many other business activities.
• An improper pricing strategy can bankrupt a company.

The last two traits, however, don't apply to specialists in the field of pricing.

• The average person knows that brain surgery is tricky. The average person understands that accounting is complicated. The average person even knows that plumbing is more complicated than it looks. But pricing? Most folks would probably consider it to be no more complex than picking a number out of thin air and writing it on a price tag. They do not understand the complexity of the process.
• It's obvious when a surgeon does not perform a surgery correctly. He winds up with a dead patient. It's obvious when an accountant screws up. IRS agents show up at his customer's door, asking for receipts. It's obvious when a plumber screws up. His customer's ankles get wet and mold begins to grow everywhere. Unfortunately, it's not always obvious when a pricing consultant makes a mistake. Problems in sales could be attributed to other aspects of the business. Perhaps it's not the pricing strategy that was at fault so much as the advertisements, the customer experience or even a supply chain issue.

It's not simply enough to provide value. One must demonstrate that value has been created. True, there are many fields that pay handsomely, but demonstrate little value creation (if any). But why put yourself in a position where you constantly have to defend your value proposition?

If you'd like some advice on your software pricing strategy (or even your next career), contact me or buy a copy of my book on software pricing.