What is Pricing – and What It’s Not

Over the last year or so I saw an increasing amount of open roles for Pricing specialists. While this is definitely a nice thing (for me personally), it might create some confusion from the managers’ or the recruiters’ side as to what these people actually do – and how the pricing person can benefit your organization. This article here is to highlight some of the misconceptions that teams might have about the pricing specialists and offer an alternative view. At the same time, I also want to encourage people who think that pricing is too technical and complicated for them to try. I want to show that it’s not such a nerdy job after all – and can even be interesting and fun.

I stumbled upon the Pricing team in 2019, when I was leaving my job at EY and looking for the roles outside. At the end I got the role that was called “In-house consultant” (one of the best jobs I’ve had so far) with the focus on pricing. Over my term there, I was lucky to participate in several product launches as well as observe the work my fellow pricing colleagues were doing. During my time at Google Cloud I also got to see how the pricing is set in the larger organization and how it scales.

That said, since my last two roles were in digital business, my understanding and explanation of how pricing works would be especially relevant to people working in the tech industry, particularly those developing or monetizing digital products.

So, let’s talk about what pricing is not, in order to see what pricing really is:

1. Pricing is not a fancy science that will tell you with 100% precision based on no additional information what prices you should charge for all of your products.

Of course, pricing people deal with prices. However, prices are rather the output of their work, while a whole lot of other things serve as inputs: who are your customers, what value your products bring, what cost structure and drivers do you have, what are the competitive alternatives and – last but not least – what are the competition’s prices. With digital products, there’s even more data to work with – you can track how your customers use your product, and that way understand better what value it provides.

Regardless of the type and the nature of the product, even after all this analysis being done, there’s simply no 100% correct answer to “what should I charge for this”. Pricing can be and very often is an iterative process, where you start with some estimation/strategy based on all the research done and see how your market and customers react to the prices and products. With the results coming in (measured by sales numbers but also by sentiments your sales force gathers) you can adjust your strategy going forward.

Look at Netflix and their subscriptions. They started with the flat rate for all their users across a limited number of devices. Once they learnt the purchasing behavior of their customers, they introduced an additional tier based on quality of video (Standard vs Premium), and later on – the new tier with ads, where they monetized partially through ads placement and that way were able to decrease the subscription price significantly. Each step allowed them to address new customer segments in the video streaming market. Besides that, they’ve also done some experiments on the family vs individual subscription plan, while figuring out what works the best.

2. Pricing is not a numbers-only “I-don’t-talk-to-people-leave-me-alone” kind of job.

Pricing people stand at the crossroad of sales (who want to sell products and normally are incentivized to do that at any cost), product (as in which product is designed for whom with which features and how much does it cost), strategy (as in what are we doing and what do we want to achieve) and many, many more processes and teams. Of course, for dealing with money you would ultimately need to be good with numbers. But dealing with people is when this job gets really fun.

You need to be able to listen to all of them, gather, process and articulate your findings in a way that all the people you work with understand and agree. If your sales are not onboard with your pricing strategy, it will probably fail. If your product team cannot support the price – and it can happen for plenty of reasons, from being too cheap to breakeven, to positioning themselves wrong in comparison to competitors – then you might fail in the long run with your new product not being accepted by the market, or worse – selling things at a loss.

With the businesses where the products change fast (as is the case for cloud infrastructure and data products, for example), aligning with stakeholders brings even more value, because outside of the pure price discussion, you might get to know new products that could work better for your customer – or if there are new features being planned.

That’s why it is extremely important to be able to effectively work with other people. And – dare I say – enjoy it on the way.

3. Pricing is not too technical for normal people to understand (or do!).

Pricing does have its share of hard science. There are books on how to measure demand elasticity (which in simple words is how customers react to you increasing the price of a product), there are rules on how to conduct price research (what works and what does not when you ask people about the price they would pay). There are sometimes requirements (especially for IT companies, with a broad data landscape) on being able to retrieve your data from the system (so one might need to write SQL queries, or code, or use the dashboard at least).

However, even with all the science and data preparation and processing, pricing can and should remain simple. Because pricing, in a nutshell, is about how your products bring value to your customers, and how they pay for this value back. There are no “stupid” ideas and no “overly simple” solutions when dealing with prices. I have however seen some Frankensteins of pricing mechanisms, that more often than not lead to disappointment and confusion on both customers’ and company’s sides.

4. Pricing is not boring.

Here I tread carefully. Of course, what’s boring and what’s not are quite subjective categories. But what I mean by this point is the following: pricing is not only about… well, prices. Pricing is about understanding what value the products provide, who are your customers, what’s happening on the market, and so much more. My experience with the cloud business, for example, has given me a first row view on how the new technologies (including AI) translate into new products and bring additional value for the customers. Combine it with being at the center of the company's operations and strategy – and there’s a recipe for an interesting journey for me.

To summarize, pricing is not an exact, disconnected, boring, or overly complicated thing. Pricing people are not your enemies (even though sometimes it might feel that way), but your partners in “pricing crime”, going with you through the rise of the market, customers churn and demand shortages. With that in mind, I hope you have fun – either working with them or being one of them.

And let the high prices (and a low churn rate) be with you.