The Dimensions of Price

Price is often considered along only one dimension, the tangible and monetary manifestation of value that a customer pays for the purchase of goods and services. It’s imperative that marketing help our customers understand ALL of the dimensions of price. This enables our customers to make informed decisions, and helps to communicate our unique sources of value while exposing the “hidden” costs associated with competitors.

We are all familiar with the concept of TCO, or total cost of ownership, and it’s the concept of TCO that must be brought into the full light of our customer’s knowledge, scrutiny, and decision making processes. In a procurement age of online reverse auctions, it’s easy to allow price to revert to its most common dimension of purchase cost. If we allow that to happen, we have ourselves to blame for rapid commoditization and compressed margins. We certainly cannot blame our customers for their attempts to standardize and streamline procurement procedures.

So, what do we need to do, and how do we do it?

We need to start by identifying all of the dimensions of price and cost. This includes key areas such as the following. I’m sure there are many more you can think of that are specific to your solutions and organization.

• Procurement costs
• Fulfillment costs
• Support costs
• Service costs
• Training costs
• End user on-boarding and enablement costs
• Integration costs
• Learning curve costs
• Error rates and resulting costs (tangible and intangible)
• Failure rates and resulting costs
• Bundled value-add services

We then need to share these dimensions of price and cost, in quantified form, with each member of the decision process inside our customer’s organization including business owners, purchasing, support, and IT. A one page summary of price/cost dimensions and the resulting impact on TCO is an excellent vehicle to broadcast this information. It should be part of the pre-sale process, shared in multiple settings including meetings, emails, presentations, and demonstrations. It should also be part of any RFI and RFP, even if it is not requested. We owe it to our customers to arm them with complete and accurate knowledge.

Pricing is an important and central function of marketing, and your approach to pricing must consider many elements beyond those discussed in this entry, including pricing strategy, financial requirements, competitive analysis, and more. If you can start by capturing and communicating all of the true dimensions of price with your customers, your execution of the pricing function will achieve major strides towards delivering value to your firm and its clients.