Question: Hi Mark, in the high technology industry like semiconductors and electronics, I find it odd that pricing professionals the companies invested in or nurture usually come from non-technical functions such as marketing, finance, sales operations, distribution and channel management, customer service, planning, and supply chain. Will you agree with me if I say that for the companies to successfully implement Value-Based pricing strategies, they need to transform their sales engineering personnel (field sales engineers, field application engineers, etc…) into high caliber pricing professionals and negotiators? I am not fully against developing non-technical personnel into pricing professional. But, it takes time to learn and develop our technical skills. For me, sales engineering personnel know the technicalities or ins and outs of the products as well as customer requirements, competitors, and best alternatives…. so I think he/she can become a high profile value based pricing expert and negotiator. Richard
Answer: Hi Richard, I love this question in so many ways. As you may know, I worked in semiconductor pricing for several years (National Semiconductor and Maxim). It is a fascinating yet challenging industry. Regardless, I will generalize the answer.
The answer is, “it depends”. It depends on what you expect your pricing people to do. For companies that have lots of products (like semiconductors), it is practically impossible for one person to know the value of every product, regardless of how technical that person is. Rather than being the person who sets the price, pricing people are better off working with the product teams to figure out what the value and the price should be.
Pricing persons point of view
From a pricing persons perspective, this requires more business acumen than technical ability. Do you know the businesses of your customers? Why would this product help your customer make more money? Your product team should know the differentiation between your product and the competitors. A pricing person should help them determine how much value that differentiation has to their buyers.
Pricing people tend to be more like internal consultants. Their job is to work with the people who justified spending money to design the part and figure out why? Over time, the competitive landscape changes. Pricing people must still work with product teams to figure out where the products fit relative to the competitors. In other words, how much value they have over time.
I had heard that Cypress Semiconductor had one person who set all of the prices. Wow. If true, there is no doubt in my mind that Cypress priced poorly. It is impossible for one person to know the product features, the competitors products and the value of all the market applications. I’m sure he could do cost plus pricing though.
Final point. Your question was very astute in that regardless of who sets the price, you need to train your sales professionals, not just in negotiating, but discovering and selling value. If salespeople don’t know the value to the buyer they are selling to, they can’t negotiate well. Sales engineers are often the MOST qualified to know the value of the product to each individual buyer. Unfortunately, salespeople also have strong tendencies to give too much away to close a deal quickly. As a pricing person, I’d like to learn from my good salespeople, but not give them too much pricing authority, if any.