I must confess – after
selling, or running a company selling, quasi-commodity products and billing
professional services by the hour, I’ve become
very jealous of investment bankers and software companies. Why? The pricing power of the black box.
What’s a black box?
It’s a technical term for a device, system, product or service which is viewed
primarily in terms of its input and output characteristics and whose inner
components, logic or processes are not available for inspection. [1] Think about it – as long as you can pay, almost
no one quibbles about:
- The investment bankers’ fee in an IPO [2]
- The price of the software which solves a problem stalling your company’s growth
- The price of the miracle drugs holding your cancer at bay
As a buyer, the best defense against black box pricing is direct head-to-head competition by multiple vendors offering essentially the same product or service or based on a pre-defined request for quotations. But this only works if there are multiple providers of the same or similar products or services.
But as a seller, you want to avoid such pricing comparisons whenever possible by:
- Creating unique products or services
- Pricing based on value delivered not costs
- Becoming the pre-imminent specialist in your business or industry
Black box pricing is
not easy to develop, but the return in improved profit margins is usually worth
the effort.
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