When a company asks us to help with pricing, the first instinct of most teams is to reach for a spreadsheet. A price elasticity estimate here, a competitor benchmark there, a cost plus margin check at the bottom. The model gets more elaborate with every week, and the decision never gets any clearer.
The mistake is almost never in the arithmetic. The mistake is in the framing.
Pricing is a statement about the customer
The first question to ask about any price is not what does it cost us, or what does the competitor charge. The first question is what does this price tell the customer about the value we intend to deliver, and can we actually deliver it.
A price that is too low for the promised value will quietly erode trust. A price that is too high for the delivered value will destroy renewals. Neither outcome is visible in a cost plus model. Both are obvious once the team is forced to articulate the implicit promise the price is making.
Pricing is a statement about the firm
Pricing also signals something about the firm to itself. A firm that competes on price tends to organise around cost discipline. A firm that prices for value tends to organise around the customer outcome. Neither is wrong, but the two require different operating models, different sales capabilities, and different hiring decisions. A pricing policy that is out of step with the firm's operating reality will not survive.
Price is the clearest statement a firm makes about the kind of company it intends to be.
The three questions we ask before we touch the numbers
- What is the customer actually buying, and what would they be willing to pay for the outcome they care about most, not the feature we most like building.
- What does the price tell the market about the firm, and does the firm's operating model match that story.
- What does the price lock us into over the next two or three years, in terms of the kinds of customers we will attract and the kinds we will lose.
When these three questions are answered honestly, the arithmetic becomes straightforward. When they are skipped, no amount of modelling rescues the decision.
A short note on discounts
Discount policy is pricing in its most visible form. A firm that discounts without a clear policy is communicating to the market that its list price is fiction. A firm that discounts with a clear policy, openly shared with the sales team, is communicating that the list price is a starting point for a value conversation. The second firm almost always captures more margin. The first firm almost always wonders why.
Pricing work is not about squeezing another percentage point out of the price list. It is about making the firm legible to itself, to its sales team, and to its customers. Once that happens, the percentage point tends to turn up on its own.