Pricing Strategy Is My Business

The Pricing Newsletter

July 2020

Hello Pricers!

Did you know that July is home to many of our nation's most important and celebrated holidays?

Many business owners will cynically try to push these products in an effort to make money.

They should be ashamed of themselves.

They'd be far better off if they pursued a complementary goods strategy instead.

With all of that food being eaten, I'd be focused upon selling antacids!

Pricing Question from a Reader

I'm a software product manager with profit and loss responsibility. The product manager for a related product at my firm has been dropping the ball. His product's quality is going down and the feature set is lagging well behind that of his competitors'. I'm worried that, as a result, the reputation and pricing power of my own product will be impacted. What should I do?

It sounds like you're in a position that is quite painful but far from unique. In fact, it bears many similarities with a situation laid out in the famous essay The Tragedy of the Commons.

Garrett Hardin, the author of that essay, described the following situation:

A group of townsfolk share a plot of land used as grazing land for their livestock. After a bit of time, a few people realize that if they acquired more animals and let them graze on the shared land, they'd earn more money. As more and more of the populace came to the same conclusion, all of the grasslands were eventually consumed. Without a source of food, all of the animals starved, and, as a result, all of the people found themselves in a terrible position. In short, when each individual found himself with an incentive to exhaust a common resource, the resource was, in fact, exhausted, and everyone suffered.

From the context of your question, it would seem that your organization doesn't have a common land for grazing cattle. Nevertheless, you do have a shared resource: your brand's reputation. Your colleague is essentially overgrazing in your firm's reputational commons, trying to squeeze out every last bit of value, even if it winds up causing everyone, himself included, to starve in the long run.

So what should you do?

I've been in similar situations, and there often isn't an answer that will please everyone. Most of your options will likely be met with some level of hostility by the other product manager. If implemented, most of the corrective options available to you will leave him worse off.

Preliminary Steps

Before taking any action, there are two steps that you should take:

  1. Quantify the magnitude of harm being inflicted upon you, your product, other groups within your organization, and the organization as a whole. The greater the number of parties negatively affected, the more allies you will have to support your arguments. In some cases, these allies may not even be aware that they are being injured in the first place, but will be well positioned to help you address the situation. If you can't demonstrate that any harm is being done, or provide an evidence-based argument that any harm will be done, your efforts may be better focused within your own domain.
  2. Identify the lowest-ranked individual with shared responsibility for the products overseen by you and the other product manager. Assuming that you and your colleague work for the same company, there will always be one individual that sits above you both in the reporting hierarchy. The greater the number of levels between you and this individual, the less likely he is to be interested, knowledgeable, and available to respond to your concerns. As with all matters of dispute resolution, the person who contacts this individual first will have a greater ability to control the narrative, so speed may be an issue. Nevertheless, all parties involved will necessarily find themselves better off if a resolution can be discovered prior to the involvement of a third party. For this reason, especially if your associate has a reputation for being reasonable, it will likely make sense to at least speak to him about your concerns prior to seeking external involvement.

Create a Plan to Increase the Quality of the Other Product

Once the basics are out of the way, you'll be ready to propose one or more resolutions. I've identified the most likely candidates, but others may work too, depending upon the unique details of your situation.

Bribe Him

Some cultures look down upon those who pay bribes. Bribes are often seen as morally questionable, inherently unfair, and sometimes even illegal. Nevertheless, one of the biggest takeaways from capitalist economics is that people respond to incentives. If someone is being incentivized to do the wrong thing, providing an equal or greater incentive to do the right thing will usually cause him to behave differently.

There may be a way for either the organization or for you to provide additional resources to his project, in the form of funding allocations, human capital, insight, or know-how. Especially when the cost is relatively small and short-term in nature, you may be able to help him to change his course. As a possible bonus, you may be able to earn a few points with either your colleague or those above him in the corporate hierarchy.

Disentangle Your Products

If your product is closely associated with his, you can attempt to break or weaken the association. This will almost certainly face pushback, both from your colleague who is benefiting from your association, as well as from executives who seek cohesive branding. Nevertheless, even publicizing this idea internally may be enough to demonstrate that a problem exists and must be addressed.

The degree to which the disentanglement must be pursued will be dependent upon the nature of the relationship between the two offerings. It may require the complete renaming of one product, a removal of any integration points, and formal assurances that the offerings will never be cross-promoted. On the other hand, a simple sub-branding may be enough to demonstrate a strong difference in customer expectations for the two products. Few in the alcoholic beverage industry, for instance, would confuse Johnnie Walker Red Label for its much more highly respected sister product Johnnie Walker Blue Label.

Change His Incentives

If your colleague feels as though he is being incentivized to release shoddy products, perhaps his incentives can be changed. A manager with enough clout may be able to alter his focus from short-term profit and loss to longer-term measures. With a strong stake in the long-term success of his brand, he may see the wisdom of not poisoning the commons.

Alternatively, his manager could replace the metaphorical carrot with a stick. A credible threat to punish, or fire, the product manager for damage to the brand's credibility could be all that is required for your colleague to change his tune.

Request Compensation

Rather than seeking to change your colleague's position, perhaps it would make sense to push for changes to your own incentives. Perhaps his manager would be willing to instill a tax on your colleague's actions. This would act as a form of capturing the other product manager's externalities. If he benefits from polluting your brand's goodwill, then it would seem only fair to provide you with compensation. This is an especially reasonable choice when the benefits accrued to him are greater than the costs that are being absorbed by you.

These additional funds could be used to mitigate the damage by providing you with augmented resources for marketing, support, and building goodwill.

Some might argue that a reduction in your profit targets might be an equally advantageous alternative, but do not fall for this trap. Doing so will lessen the value of you and your product to the organization. In addition, it will do little to address the future erosion of your product's value to the company and to customers at large.

Devalue Your Own Products Too

Have you heard the expression, "If you can't beat them, join them?"

If the prestige associated with your company's brand is being eroded, why would you try to fight it? It will likely burn your political capital, and cause you to misallocate resources in a futile effort to fight the inevitable. Maybe it would be easier and more efficient for you to focus on improving your profit and loss by cutting corners too. The full costs of this behavior might not be felt by the corporation for years, but if you've given fair warning, and received no support in return, why should you take it upon yourself to bear the costs of his actions?

Admit Defeat

The last option is one that I don't mention lightly. You can ride the wave down while you polish your resume and seek other opportunities. If the future for your brand is dire, and you can't do anything about it, why stay where you are? You owe it to yourself to find a new position while your bargaining position is at its apex. You should start looking for your next role before your product's reputation has begun to suffer noticeably. Far too often, people wait until they have to make a change, rather than take action earlier when their negotiating positions are much stronger. Now might not be the best time to be looking for a job, but, with all that's going on within your company, now might be the best time to begin your search for alternatives.

Conclusion

As companies become larger and their portfolios more diverse, these types of situations are guaranteed to become more common. The principal agent problem has been a thorn in the side of businesses large and small for millennia, and it won't be disappearing any time soon.

As Garrett Hardin depicted in The Tragedy of the Commons, when people share a resource but lack a shared incentive, all parties are doomed to suffer in the long-term. For that reason, it is imperative for organizations to provide a singular goal and align the incentives of their employees such that each worker is naturally inclined to pull in the same direction. When firms fail to do this, either through lack of insight, lack of ability, or lack of institutional power, the overall strength of the organization is sure to suffer.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

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Notable Pricing Quote

"A good neighbor increases the value of your property." -- Czech Proverb

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