If you took a glance at my bookshelf, you would see that my favorite economist is Thomas Sowell. And yes, I’m fully aware of just how dorky and geeky it is to actually have a favorite economist.
Now, Sowell isn’t one of those buzzword-of-the-day economic commentators you see in the media all of the time, telling you just what you want to hear. Nor is he one of those boring academics who can put you to sleep introducing themselves. In sharp contrast, Thomas Sowell has always been a charming and relatable “straight shooter,” best known for his brutally honest…and at times, sarcastically humorous…assessments of various economic systems.
And when it comes to driving pricing improvement in B2B environments, one of Thomas Sowell’s quotes really resonates with me:
Admittedly, I talk a lot about pricing “solutions” myself. We all do. It’s just the language of our profession; the jargon of our trade. That said, we should recognize that the word “solution” does imply a level of finality and perfection that rarely, if ever, exists in real-world business environments.
After all, pricing in B2B isn’t a simple jigsaw puzzle where you just find the missing piece, plug it in, and everything works out perfectly. No, what actually happens with pricing improvement in an interconnected commercial environment is more akin to whack-a-mole—i.e. you address one issue and then other issues pop up as a consequence or result.
Let’s say, for example, that your company is struggling with margin erosion on key products due to material cost inflation. Of course, a common “solution” might be to implement a price increase on these items to cover the costs. Easy peasy, right? But then, within just a couple of weeks, the sales team starts reporting pushback from key customers and you’re suddenly losing wallet-share in strategic accounts.
As it happens, the so-called “solution” has its own set of follow-on costs and consequences. It’s not that the price increase was a failure. It may still have been the right move, given the circumstances and your broader objectives. But thinking of it as a “solution” oversimplifies what’s actually happening. What’s actually happening is that you got higher margins, but at the cost of some volume and customer satisfaction. In other words, you made a tradeoff.
Or as another example, let’s say you decide to tighten your discount approval or exception processes to reduce pricing variance. One immediate consequence might be a positive in that you gain better margin control and reduce over-discounting. But on the flip side, sales cycles could lengthen as deals get stuck in approval-loop purgatory and buyers needing quicker turnarounds may lose patience and seek out more nimble competitors.
The so-called “solution” you implemented to control over-discounting comes with a hidden cost in the form of slower turnarounds and possibly, lower win-rates. So, was it really a solution? Or was it just a way to prioritize margin control over speed and responsiveness? Here again, you’ve made a tradeoff.
That’s why I like Sowell’s quote so much. It’s a simple and blunt reminder that addressing one issue often means creating or exacerbating another. And it also reminds us that there are no magical “fixes” and that everything is just a reshuffling of priorities or a rebalancing of consequences.
In B2B, we have to approach pricing improvement with our eyes wide open. If we’re expecting to find some missing puzzle pieces that we can just plug in and make everything picture-perfect, we’re setting ourselves…and everyone else….up for a lot of frustration and even failure. The sooner we accept that true pricing “solutions” are mostly an illusion, the sooner we can focus on what really matters: making better tradeoffs.
In the end, this approach allows us to be more proactive about anticipating the downstream effects and having contingency plans in place. It’s not defeatist or pessimistic. It’s just the mindset of a realist who understands how things really work in a typical B2B environment.
So…the next time someone looks to you for a pricing “solution,” you might want to channel a little Thomas Sowell. There are no solutions; there are only tradeoffs. The most effective pricing professionals don’t actually deliver miracle cures; they provide thoughtful and deliberate management of the tradeoffs to best achieve the objectives.
And in an increasingly complex and interconnected commercial environment, that’s about as close to a “solution” as you’re ever going to get.
Aligning Pricing to Business Strategy
How do you ensure that your pricing and the overall business strategy are properly aligned? And what should you do when there's a disconnect?
Building Pricing's Credibility with Sales
Sales often views Pricing with skepticism and doubt. And as a result, they disregard our suggestions and ignore our recommendations. What can we do to get them to see us as a trusted partner?
Managing Risk in B2B Pricing
Whether real or perceived, it's always best to take a proactive approach to managing and mitigating risk in B2B pricing. In this session, learn how to mitigate pricing risks before they can manifest.
