Webinar: Why Arguing About Who Owns Pricing Models is the Wrong Argument!
One argument that often creates dysfunctional relationships between product marketing and product management is “Who owns pricing”. In this talk recorded live, Melissa Reeve and Luke Hohmann will discuss why arguing for ownership of pricing model decisions is less important than creating an environment of stewardship using the Profit Stream™ canvas. Companies can use a common set of principles and practices to create sustainable profits.
During the Session Luke & Melissa will explore:
– How to shift toward a mindset of stewardship
– How the Profit Stream™ Canvas facilitates a way to visualize and collaborate around pricing decisions
– How a mindset grounded in principles and practices can anchor pricing decisions
Luke has been involved with Applied Frameworks since its founding in 2003. He later started Conteneo, a collaboration software company that Scaled Agile acquired in 2019. While at Scaled Agile, Luke served as a SAFe® Framework Contributor and Principal Consultant, with significant contributions to the SAFe Agile Product Delivery (APD) and Lean Portfolio Management (LPM) competencies and the SAFe POPM, APM, and LPM courses. He is a SAFe Fellow and the Chief Innovation Officer at Applied Frameworks. His books include Innovation Games: Creating Breakthrough Products through Collaborative Play (2006), Beyond Software Architecture (2003), Journey of the Software Professional (1996), and Software Profit Streams (2023).
About Melissa Reeve
Even before she knew what capital A Agile meant, she was living a life filled with agile thinking. An upbringing filled with challenges and opportunities pressed her to make on-the-fly pivots or persevere decisions, whether it was to spend three months on her own in Japan as a sixteen year old or to self-fund a private university education. She learned how to choose a direction in the midst of certainty, keeping enough options open to adjusting as new information emerged – her Agile life.
The menagerie of people and places she’s encountered along the way, including time spent living on the Navajo Indian Reservation, exposure to management gurus, and work with homeless populations, expand her empathy base and inspire new ways of thinking. As a lifelong marketer, she enjoys seeing the discipline evolve and is currently innovating around Agile marketing, modern marketing management, and business agility. She lives in Boulder, Colorado with her husband, chickens, gardens, and dogs.
*Transcribed using ai. Please excuse spelling and grammar issues
Luke Hohmann 00:00
So my background is, I’m Luke Hohmann. I’m the Chief Innovation Officer at Applied frameworks and a SAFe fellow a former contributor to the framework. I’ve written a few books. I’ve made some contributions to the framework. And of course, the new book is software profit streams, which we’ll be talking about my colleague, Melissa. Well, that’s a welcome.
Melissa Reeve 00:21
Thanks, Luke. It’s such a great pleasure to be here and I don’t have quite as many icons on my end, you know, it’s Luke is a luminary. I also come from the safe ecosystem. agile marketing was saved and saved for marketing. I don’t think both of those and I’m currently the co founder of the agile marketing Alliance, bringing agility into the marketing space. And I’ve been in marketing for about 25 years leading marketing in a variety of organizations.
Luke Hohmann 00:54
And a personal story for Melissa and myself is that we worked together at Scaled Agile for a while, and it was during that time that we were able to work together on the SAFe for marketing white paper, and Melissa I’m sure will attest to everyone that when you’re making a contribution to the framework, and making white papers, it’s not one revision. It’s not even 10 revisions. It feels like 1000 revisions, where every word is argued about and in a in a very positive way, but I would really recommend for those of you who are on the webinar, who have not yet gotten the safer marketing white paper, or join the agile marketing alliance that you really consider that it’s a it’s just a shockingly good set of resources and a growing community. So I would I would really like to put a plug in for my colleagues on this one.
Melissa Reeve 01:49
Thank you so much, Luke. And again, thanks for your support in the development of the safer marketing white paper you paid played a pivotal role and
Luke Hohmann 01:57
it was fun. Okay, well, let’s talk about challenges in pricing and packaging, what kind of things are we talking about? Well, Melissa, one of the things that you’ve always talked about is this, this silos can be helpful for a point in time because we got to do work, but then maybe not.
Melissa Reeve 02:17
Well, yeah, I mean, the siloing introduces delays it introduces handoffs, and especially with something that can be as contentious as pricing. You know, you think about it, you think about all the people who want to have a hand in it. And you have the people here and this is why I love this cartoon are the people behind their their castle ad imagine them lobbing their pricing ideas over to the other side. And then you know, the people in the middle of watching this happens, I will maybe I want to, maybe I want to say something about this.
Luke Hohmann 02:46
Or maybe I have to write maybe, maybe your pricing decision affects our license agreement, or maybe your pricing decision like hey, let’s have a discount for the conference and the conference team, of which I know you’ve managed that, you know, the product team because it’s in the Congress. He was like, hey, for the conference, they want to have a discount and they’re like, excuse me, the conference is two weeks away. You’re not going to get a discount in in two weeks. And so this siloed mentality can also affect the timing the other thing is that we have this idea like I’m especially in product management, right? I’m the product manager. I own everything and you hear this in these goofy phrases in Silicon Valley, you know, you’re the CEO of the product. And so what is this this belief system that one owner can rule them all? I mean, does marketing people feel that
Melissa Reeve 03:38
way too? It’s leftover from the the legacy thinking right of egos and of people who, you know, we we consolidate power that in this way, right what we can control and in Agile returned and move away from that ego based consolidated power thinking that our power structures on the decisions we make or the the size of our budget, and we’re trying to get to the right solution, not have this One Ring to rule them all.
Luke Hohmann 04:13
I love that. And then when we are using tools, we’re often using the wrong tools or no tools at all. Oh, you guys are seeing our notes in the slides. We forgot to delete our notes. But the we’re using the wrong tools and what I mean by the wrong tools is that I’ve seen in some situations where people are trying to cram pricing decisions into their agile management tool as opposed to using the other tools that are available, which is which is pretty wild about the tools in the tool usage.
Melissa Reeve 04:48
Totally agree with Yeah. Well, let’s
Luke Hohmann 04:50
let’s talk about reframing pricing and packaging as a systems challenge. A software business model and when we say software, we mean a software enabled solution. So it could be your credit score report because software was used to create the credit score. It could be your microwave oven, because there’s software in the microwave oven or your car which is millions of lines of software code and hundreds of chips. So a software business model is almost any system in the modern world because of what’s happening with IoT, and what’s happening with all of the software that goes into it. Which means we need systems thinking so we have to make and remake a series of interdependent choices and I’m going to come back to that in a minute with Melissa. So we start with the customer. And then we say we want to license our software on an annual basis, which means the terms have to be captured in the license agreement. The technical architecture has to enforce those terms. And of course, if I’m in Europe or other places that might have compliance and data retention, well those policies are going to influence the technical architecture, which will in turn influence the software itself because I have to honor through the software the data my system might my my system might be creating. So Melissa, this is a simplistic version of the systems thinking approach. How would a marketeer look at some of these nodes or what kind of nodes would perhaps even a marketeer add to this notion of systems thinking? Well, I
Melissa Reeve 06:26
love the premise and in our in our pre chat as Luke was was showing me his pen and he was talking about how transactions used to happen, there’s your pen, and he said, You know, when you sell a pen, you transfer that ownership and you’re using the pen as you know you just now that other person owns the pen and can do whatever the heck they want to do with that pen. But when we’re in these online environments, that we now have a different set of considerations. And what I love about this flow is that we do have to think think about things like GDPR you know, in any business is really a software enabled business. You’ve got your CRM back, back end, you you’ve, you know, you’ve got your infrastructure that’s driving it, and it you know, most likely you’re going to have some sort of software that’s enabling the solution that you’re providing. And so you’ve got to be thinking about all of these things, you know, the the things that I would probably add as a market to tear our personalization you know, how are you going to customize that software for an individual? How are you going to you know, you’ve got the the technical architecture here to reinforce the terms. That’s, that’s the terms the pricing you Who are you going to offer the discount to for how long? You know, those are some of the things that as a marketer, I’m starting to think about
Luke Hohmann 07:58
right and even as the markets here how do I communicate the choices that I’m making a narrative? Last night I was coaching one of our clients who’s in Australia, and they have a very novel AI solution that can identify anomalies in a in financial statements that suggest fraud. And we were talking about the narrative, the story that his marketing has to tell associated with his particular kind of AI and his particular kind of software. And so I also think of the marketing elements of well, what’s that story? And how do I how do I communicate to the people who care about data and compliance that I am, I have the right compliance. So all of these elements come in. Now in our world, we evolve a value stream and for those of you who are not familiar with the value stream I would advocate going to the Scaled Agile framework.com. There’s a lot of articles about operational and development value streams and value streams in general. But a value stream just produces value, it doesn’t necessarily produce a profit. So when we look at the evolution of the value stream and to a profit sharing, we think about quantifying economic value. We think about selling through pricing, packaging and licensing. And then we really look at the economics because I have to have revenue that exceeds costs over time, not just once because we want to create a sustainable business, every business leader I know they don’t want to make one sale they want to build one business or many businesses, and that means many sales in many relationships. So we have this notion of time and the influence of time in our relationships.
Melissa Reeve 09:49
Yeah, I feel like you know, just to just to add it in for for some of the marketers that we talk a lot in agile marketing around organizing around value. And this notion of organizing around value is more than more than just marketing, of course, because it takes more than just marketing to deliver that value. You know if we were to translate that into the parlance of safe, it’d probably be in what they call an operational value stream. But I think the notion here is that as you’re organizing around value, my takeaways from this slide are it’s more than just marketing. And you know, marketers often kind of get these blinders on and and just think about the discount or the promotion. But of course, it’s broader than that, you know, you’ve got to be thinking about all these considerations. And you know, if you’re thinking about the the P and you know, we’ve got the four P’s, the promotion part, it’s, as you say, Here, it’s not just once but over time, how do you make that sustainable? How do you set that pricing in a way that that is sustainable? That’s right, and,
Luke Hohmann 10:58
and part of sustainability is in fact, at times evolving? Your price strategy or evolving your price structure, evolving your price packaging, one of the biggest flaws that that we see is, especially in the world of agile, and I don’t mean safe, I mean, all flavors of agile, all flavors of agile have some form of a backlog. All flavors of agile have some form of releasing or promoting or creating more value over time. It’s in the Agile Manifesto. What is challenging is is the lack of adjustment of the price. Another client of ours was a startup who had just gotten their a round of funding. And they hadn’t raised pricing in two years. And we’re like, you’ve keep you’ve created all of his value, how you’re getting back and they’re like, we’re just growing. I’m like, okay, but growing is fine. I said, How often have you lost a deal? And they’re like, we pretty much never lose a deal. I’m like, okay, but that’s actually a sign that your price is too low. If you never lose a deal ever. Chances are not be enough, especially in the in this case, it was in the b2b space. So the pricing in a way that you weren’t really are recouping the economic value or your portion is really
Melissa Reeve 12:22
critical of it.
Luke Hohmann 12:24
So when we talk about profit stream design, we look at sustainability. We look at three kinds of sustainability and Melissa mentioned this, the first kind of sustainability is the sustainability of the solution. Is the solution evolving in a way that continues to meet market and customer needs economic sustainability as you’re making the solution more valuable. Are you recouping the money? Are you creating a fair value proposition? Are you also being fair to your customer? Or are you looking at total cost of ownership? Your new and improved version of software may be garbage to your customer if they have to retrain 1000 workers across 20 assembly plants? We can get pretty unhappy when people like Netflix take away our DVD streaming service where or a DVD delivery service when when streaming isn’t ready. So the economic sustainability also looks at the impact on the customer. And finally, relationship sustainability and this is one of those aspects that are really critical. What is my relationship with my suppliers, the people I’m using to build out my platform? What is my relationship with my customers? What is my posture and what is my relationship with regulatory agencies? Am I like some companies? Sadly, in Silicon Valley that explicitly flaunt laws, or am I going to be a better corporate citizen and have a different kind of ethic that says, hey, look, if GDPR says I’m not supposed to retain data, I’m not. And I’m going to honor the choices that we need to make among our people that we’re serving. So let’s look at some of the group’s we’ve talked a little bit about product management, product marketing, but in reality, there’s a lot of different groups involved. And Melissa, you know, one question I like to ask is do we miss anyone?
Melissa Reeve 14:24
It’s a great question. I’m sure. I’m sure everybody in your organization probably gets gets impacted. You know, I, you know, I’m thinking of customer success teams, and, you know, they’re on the front lines, and they’re, they’re probably the first to say to get questions around these things. And let’s say that we deploy a new pricing strategy, and they’re getting questions and they might have some input on how these things might land.
Luke Hohmann 14:53
Yeah, I love the fact that you brought up customer success or customer care i i moved to Silicon Valley quite a number of years ago. But I remember moving to Silicon Valley, and I was working for a fantastic CEO, Daniel Lewin, who was on the original Mac team. And I remember we were talking about customer care. And he said, Look, if the customer care people can’t answer a sales question, then they’re not doing their job and I was like, Whoa, like, I always thought of customer care is, you know, is the power. Is it plugged in? Is it turned on and he’s like, no, no. Customer Care is so much more than that, especially in the professional and business space. You want your customer care organization. So we’ll have to make a note that in the next version will add that but it’s true. Well, who should own the system? Let’s look at the concept of ownerships. When we look at the ownership of the system, we first have to understand what the system is and then what are the tool? So what we did is we looked at all the different nodes that we felt were critical for pricing, packaging and licensing, and we organized them into a representational form, and then we put it into a canvas. I am friends with Alexander Osterwalder and other people who build these canvases like the business model canvas or the value proposition canvas. And we thought that a canvas and its compact representational form would be good for what we’re trying to communicate.
Melissa Reeve 16:24
Yeah, I love this notion of it of a canvas because especially with something as complex as pricing, and we started off this webinar, talking about the complexity of partner of pricing. And we just reviewed the slide saying, here’s all of the the people who are involved in unless we have a way to simplify that simplify the conversations, give them some focus, then that’s when these pricing decisions can stretch out over months or even years.
Luke Hohmann 16:56
Well, and it’s also the idea that the Canvas helps me as a checklist that sometimes when when you’re looking at tools and settings, you’re looking at tools in your in your home. One one set of tools I have is this little plastic kit just for small repairs, and you open up the kit and it’s got about 60 different tools, but it’s pretty much every tool you’ll need for for the basic of home repairs in one little plastic box. And of course, there’s special tools and special wrenches. But for most of what you’re doing at your home, there’s a small set of tools that you’re going to use consistently. And so having this kind of compact representational form helps you remember Oh, yeah, I have to think of these things together. So we’ve organized the canvas. It’s not just a set of blocks, there’s actually a specific organizational structure. There’s three rows the top row is solution sustainability. The middle row is the economic sustainability and the bottom row is the relationship season sustainability. And there’s also columns. The the monetization column is really the central piece because that’s where we talk about the exchange of value money for software between the customer and the solution. So the left hand side is the customer and the right hand side is the solution. And the bottom is compliance. Now this slide has a lot of words on it, but it what it allows us to do is it allows us to bring in other groups and other elements to the pricing discussion. In a way that creates that holistic solution.
Melissa Reeve 18:38
Yeah, just to be clear, you you have training around this you enable people to harden on how to use this, is that correct?
Luke Hohmann 18:45
Yes, we have a series of so we wrote a book, so that I always think of communicating knowledge as I want to get the lightweight overview to check out the website or even check out the webinar. I want that additional information and I’m a self learner and I just like to consume knowledge through reading when I have a book. Most of us though, do better when we have multiple modes of learning input, I can talk to someone, I can listen to an instructor I can have something as a reference. And so that’s where our training kicks in. So thanks for mentioning that Melissa. But for those and for those of you will follow up in the show notes, but obviously for those of you who would like that kind of training you can learn our training at profit dash streams.com. Okay, so the canvas gets organized. And it’s got this nice, lovely structure, but we still have to answer the question and we didn’t answer it yet. Who should own the system? Well, let’s talk about this. We start with mental models. So before we talk about ownership, we have to talk about mental model. If you’re working with other people, you have a personal and individual mental model of what you think you’re responsible for. It’s your job. It depends on you know who your boss is, and your here’s my responsibilities. So product managers have a certain set of responsibilities and product marketing managers have a different set of responsibilities or product, the marketing side. Now Melissa, I’m going to ask you a specific question, and this is unrehearsed everyone. So let’s see how she does real time. Give me an example of different responsibilities for which there’s very little disagreement. Like if you were to go into an average company and say, who owns X in the average answer would be almost always what product management owns that? And if I said who owns why you’d say the most average company was a well marketing loans that and so what is one thing that you would consider that product management kind of really does own in a way that is non controversial,
Melissa Reeve 20:54
but I feel like the product manager owns the product roadmap. That’s pretty clear. In my mind, that would be
Luke Hohmann 21:02
the evolution of the features and capabilities and kind of maybe the alignment to the market as its evolving. Okay. I would agree with that. I do think that the actual solution the product roadmap tends very clearly to be owned by product management. What about marketing? What is something that would be kind of really general agreement that marketing owns that?
Melissa Reeve 21:27
I think the brand you know, that one’s pretty straightforward in front of marketing is aircraft management is going to be like, Yeah, we own the brand. What are you talking about?
Luke Hohmann 21:37
Yeah, well, we of course the product has to be in alignment and support the brand, but I would agree with you, you know what I thought you might say I thought you might have said the the actual promotion and creative things that marketing do does around the campaigns. The advertising, I thought you might go there too. Would you agree that that’s another area that marketing pretty clearly owns? Yes. Okay, great. That’s good for me to know, because, because that’s how we’re doing it at at Applied framework. Good but now there’s dysfunctional patterns, especially with pricing. And pricing is one of those areas where there isn’t clear ownership. And so if, if pm and PMM both think they on pricing, well, they just cannot argue. And if PMM and PMM. Both the feeler like listen are working and my mental model is she owns pricing. And her mental model is I own pricing. Well then neither of us is really doing pricing so someone has to set the price. So yes, someone has to do it. And so sales is going to set the price or finance now Melissa, if sales sets the price what might be a problem with that now Laura is our salesperson she’s gonna say there’s no problem that their sales and sales, but in the normal world, what might be a problem is sales sets the price?
Melissa Reeve 22:59
Well, I think you alluded to it earlier, which is the company who’s like yeah, we never lose a deal.
Luke Hohmann 23:05
Yeah, we never lose a deal. I get 100% Commission.
Melissa Reeve 23:08
That’s correct. And I’m always meeting my sales goals.
Luke Hohmann 23:12
So what about if finance sets the price what what kind of problems? Would we see a finance is setting the price?
Melissa Reeve 23:17
Well, you might have another problem finance is going to try and optimize profits potentially or I would I would posit that finance might not have a solid finger on the customer. And they might be missing the market.
Luke Hohmann 23:31
Yeah, and if they’re don’t have a solid figure on the customer, they don’t have a solid, a solid if they don’t have a solid perspective on the customer. They by definition don’t have a solid perspective on how to provide value. And surprisingly, finance will say, Oh, I can set the price at this and make a profit. But a true analysis of the value says well, you can get more, you can charge more and so we actually find that finance often under sets the price because they hit their number, but that doesn’t mean they’re actually getting the value or structuring the relationship the right way.
Melissa Reeve 24:09
I want to before we move on, I want to just introduce one other concept which we talked about earlier, which not earlier in this webinar, but prior to this, which is these decisions tend to be more fuzzy, in what I’m going to call the messy mill. So when you’re a super small organization, it’s pretty clear who’s setting the price and you’re who’s making pricing decision. You probably have a strong leader too. When you are a really large organization, you might have an entire division that works on pricing and pricing decisions. But when you’re kind of in this middle ground of either a company that scaling up or a growing career just even a midsize company. I feel like that’s when these dysfunctional patterns start to emerge. Would you agree with that?
Luke Hohmann 25:00
I do. I think I think we’re naturally talking about this concept of how does the organization evolve? And when I’m thinking about this, I always think about these conversations in the context of and I’m going to draw on the screen which I love to do. If we think about it, there’s new product development. Then there’s our we actually have our product and we’re growing over time. And especially for a startup when you’re in that early stage. You tend to you kind of don’t have scale. And so you kind of one of my phrases is when you’re small you do it all because you got to but to your point, Melissa, as my product grows, and maybe I move from one product or solution to a portfolio, now I have to do things like rationalization. I have to make sure I might need to do geographical rationalization. What’s my pricing in India? What’s my pricing in Latin America? What’s my pricing in Europe or Canada? So, to your point, I think it’s really powerful what you talked about which is sometimes neither product management nor product marketing will own pricing because your organization’s complexity and scale is such that you have to pull it into a group to create rationalization within the pricing function. Well, let’s see what happens though. If we move on. And we say what what is this notion of moving from ownership to stewardship and Moses, I really love for you to take this one because you’ve got that that that there’s also an empathy in the way you describe this. I want to I want everyone to hear that.
Melissa Reeve 26:44
Yeah. So so I feel like especially in you know, in an agile environment we’re trying to get away from the the woman on the left, and it’s interesting is we’re looking for images on these slides. You know, I was I was putting in all kinds of keywords trying to find the right image. And you know, what image popped up with this woman is when I put in ego, right, so when we think of ownership again, this is where we started. It’s often intertwined with ego in something we want to own something we want to get credit for. Something that we feel like is is empowering to us, in moving into a mindset of stewardship. Now puts us into a different mindset. You talked about those mental models. It says that we are your guardians of pricing for the good of the customer, for the good of the organization. And it’s those those pillars of sustainability that you mentioned, right? We’ve got to maintain these relationships with our customer. We’ve got to exist as a company and otherwise we’re not serving our customers. And it’s got to deliver value.
Luke Hohmann 27:54
You know, it’s so funny that you talked about ego and this notion of satis, satisficing and satisfying stakeholders. I have a friend that I met at Adobe Hart Schaffer, and we were talking about like, what’s the best definition of Product Management? And he went said, well, people think that you delight some stakeholders, but the reality is you delight all stakeholders. You’re delighting your customers by helping them succeed. You’re delighting your finance team by giving them something that does make a profit. You’re delighting your sales team by structuring the deal so that their needs are met. So it was this very interesting and ultra simple definition. So if I’m going to move from ownership to stewardship, what that leaves us with is that there’s literally only one functional pattern for pricing. We’re working together as a system to optimize the system. So what that means is we agree that this group is the steward. And notice how this definition scales. If you’re small, you might have just the CEO and the founder of 10 people and the CEO is the steward. The company expands and you hire your first product managers and your first marketing people, as long as we know who the steward is, though, will succeed in the very large organizations that Melissa has worked with and talked about. You have a separate pricing group and that separate pricing group is the steward of pricing. So that’s how we see this. Melissa, do you want to add anything to this notion of is like we think there’s really literally only one
Melissa Reeve 29:32
functional pattern. I think you’re right, and as you were talking, I just kept my head kept going back to the agile mindset and it’s move it’s that shift. That’s really what we’re talking about here is just one more fundamental shift from this, this ownership this siloed thinking into a more collaborative environment into one that’s that’s focused on delivering value and pricing has been left out of the conversation. And so it’s time to invite pricing back into that conversation.
Luke Hohmann 30:06
Yeah, and I and I’m so glad you said agile because inadvertently, we’ve over rotated on the term like product owner, right and I’m I’m the Product Owner and how do you how do you get away from the feeling of ego when you start with with a word that is laden with ego, right? Imagine if Scrum and started with product steward as opposed to product owner way back when scrum was being introduced? I think we would have had a lot of very different conversations over decades, had we not started with the word owner in some other word. So we’re now at our point of discussion. And we, before we get there, we’d love for you to buy the book software profit streams, it’s available on Amazon. And we would certainly love to have you join the agile marketing Alliance. I am a member and a member partly because I’m Melissa’s friend, but mostly because I actually get value from it and I’m selfish.
Melissa Reeve 31:09
But we’re glad to have you part of the community. It is the largest free online community of agile marketers. And we’re global in nature so you’re able to connect with people from all over the world. And again, no cost to join. Because our mission is to increase the depth and the breadth of agile marketing and we are working to bring that community together. It is fragmented in nature.
Luke Hohmann 31:34
Absolutely. So Laura, I don’t know if we have any questions. I know I have one question from a friend coming in. But have we had any questions or any comments in the chats and and that we should be looking at
Laura Caldie 31:48
I’m not yet but that’s, you know, a good call for any thoughts, questions, if you want to check in with what some of the other folks might be thinking? You know, I’m curious question to people who are here in your experience that people who are listening, is there an owner of pricing or is it historically been more collaborative in your experience, like how does it work in the companies that you’re coming from or have worked with or have experience with and that’s a you can just post your answers in chat. And I’ll turn it back over to you Melissa and Luke.
Luke Hohmann 32:20
Well, the one of the questions that we got coming in that Melissa already answered was this notion of scale and what happens in the truly largest large companies. Now there’s an element to that scale, though, that I think is important. And Melissa, if I’m working in this very large company, and I have a pricing group and I am in product management or in product marketing, so in product management, I might think I’ve produced enough value I want to raise my price I have to kind of work with that group or product marketing. You might think, hey, look, we’ve got a really special thing and we want to do this kind of promotion, or at this conference or this event. We want to do this promotion. And we have to go work at that group. Does this mean that we want everyone to know a little bit about pricing? Or is it really we don’t want people to know too much about pricing. We just want the one centralized group to be the people making those decisions.
Melissa Reeve 33:17
Well, I mean, I’ve got my opinion, I’d be interested in your thoughts on this, as well. You know, I feel like in my head and going back to that slide, where we’ve got all the different groups who are who are impacted by pricing decisions and even in a very large organization, either you’ve got to have a lot of trust in that centralized group of people, that they in fact, have a stewardship mindset, and that they are the ones who are collaborating with all those different groups. And functions in in a healthy, functional organization. That’s what’s happening. I think there are other organ large organizations where there’s dysfunction, where that pressing group is operating in a functional silo and they’re not necessarily connecting with all those different people who are impacted by pricing. They’re making decisions without really understanding the full impact. And then when the pricing is released, there’s all sorts of unintended consequences.
Luke Hohmann 34:26
Yeah, those unintended consequences occur precisely because pricing is a system. And sometimes, it’s something as simple as as adjusting a price. And most people think about pricing and they’re like, I have to do a price increase. That’s not true. Sometimes we explicitly lower price and for example, the video game world when we have a franchise, and I use the Witcher franchises my example because one of my kids loves playing The Witcher, but it’s really interesting because Witcher has four games now 123 and four, and my son will still play Witcher one and two precisely because they have a different storyline and the graphics Yeah, that may not be as good as the subsequent Witchers but the story keeps him engaged. And the higher level point is that adjusting prices is part of that system and you don’t want to just raise them because you can have unintended system consequences. Sometimes the system responses, I’m going to lower this so I can raise this and I’m going to maximize the total benefit. That’s different. That’s different thinking.
Melissa Reeve 35:35
It is different thinking. Yeah, I wouldn’t mind talking for a minute about go to market. Because a go to market is one of those things we talked about the areas where things are very clear. You know, Product Marketing owns or product management owns the product roadmap, Product Marketing owns things like campaigns and branding. Yeah, go to market I feel like is where those two come together. And it can get really fuzzy. And if you think about it, one of the the pieces and parts of go to market is pricing. Yes. Yeah. And so I think that’s where, you know, when I put on my marketing hat, I feel like that’s where some of the friction can come in. That’s where marketers can get surprised that pricing has been set. They may or may not agree with it. The stewardship the ownership might be fuzzy. And and so I guess you know, if I were to answer my own question and then turn it over to you you know, it’s how do you how do you concrete one, create the environment of stewardship with a clear owner, right. So we’re not suggesting that you don’t need a will we’ll just call it head of stewardship. You need somebody who’s able to make stewardship
Luke Hohmann 36:51
doesn’t mean there’s, there’s no one, you know, making a decision. But keep going. I’ll I’ll I have an analogy from the software side that we might be able to leverage.
Melissa Reeve 37:04
Great. So so then the second part of this is getting marketers out of what I’m going to call spreadsheet health. So even these these go to market plans, marketers tend to prioritize efficiency over effectiveness. And what I mean by that is, you as a marketer probably have a template of how you typically run go to market motions, and pricing might be a line in that template. And it’s so easy for marketers to just check the boxes off these templates instead of having meaningful conversations. So this is my invitation to all the marketers on the call to really ask yourself, Am I being efficient or effective with the systems that I have in place?
Luke Hohmann 37:51
You know, I’m going to build on that in two ways. The first is the notion of just that, what is the steward do and in the very famous from the software side book, The mythical man month, Fred Brooks talked about the purpose of the architect in a software system was to provide conceptual integrity over the system’s choices, and a steward and in many cases, Fred Brooks’s description of an art of an architect was as a steward where there’s this notion of conceptual integrity of keeping people aligned. And this also speaks to governance. We if you drive down my street, every house is a little different. But every house was built according to a set of standards established by our city so that we can safely connect a power and water and those standards evolve, but there’s conceptual integrity. And so I think of stewardship many times, yeah, there is a person who helps keep us together. They keep us in conceptual integrity. But the other thing that I’m thinking about is, Laura and I were talking last week about how hard it can be for that initial launch, because we’ve all been through the first launch and it’s always the hardest. And to your point about checking the box and efficiency is like, did we do pricing? Yes, thank god check. Right and then Laura pointed out that sometimes people don’t change pricing because it was so hard to get the pricing done the first time that they don’t want to revisit So Laura I’m gonna rope you on this one because you were you were bringing up some pretty great comments about sometimes people just don’t do it but in yet they should, even if it’s hard because that’s that’s what we have to do to get the system optimized.
Laura Caldie 39:38
Well, even when I was thinking about that comment, it’s, you know, if it’s something that whether companies should do it more frequently or not, if it’s something that’s done every couple of years in a concerted way, I can guarantee that team members are different people than who did it last time. Right? So every single time you do it, it’s not that you even have a bunch of muscle memory. People come and go, they don’t stay in the same roles. They may not even work for the company anymore. And so how it was done in the past, that the organization may not even have good muscle memory for it. So I think in that conversation, Luke you were talking about how, you know, in a really effective roadmap that yeah, Melissa, you pointed out that the product management team owns the roadmap. Well, in that roadmap, there’s a cadence of revisiting and re analyzing kind of the pricing decisions that are made. And if that’s made really visible, that we do this on a cadence may not be every two weeks, but it’s certainly more than once every two years. Then the organization builds the the memory and the skills on how to do it, even if some of the people on those teams evolve over time.
Luke Hohmann 40:45
So any other questions? I see maybe one or two and then we’ll we’ll we’ll finish in a timely manner and get our attendees back into the workforce.
Laura Caldie 40:57
Yeah, well, there’s a couple of q&a if Melissa and Luke, if you want to just take a quick glance at those. There’s two in the q&a, so maybe we can take both of those. And then I’ll take a look at the chat real quick to see if there’s anything else in there.
Melissa Reeve 41:10
Yeah, so Anthony has a great question. And I he’s he’s positing that really pricing is set and I think it aligns with what we’re saying here. It pricing is based on the value current clients are receiving from the solution product. And it’s when people value what you value and they believe what you believe. Then price is a byproduct of those two things. You know, and when they don’t value what you value, then then price will be the point of focus. So what I’m reading into that Anthony is basically you start to compete on price when people don’t value when you haven’t aligned around the value you’re delivering and a belief system. I would agree with that to a point. I do feel like at some point, you know, there are there are different personalities, just you know, just in the world, right? There’s all kinds of personalities. And there are some people who don’t feel curious, it’s some people some cultures don’t feel victorious until they’ve negotiated a discount. Or until they’ve heard and hit a certain price point. Um, so I think it might be a little bit more complex with that, but I do like what you’re you’re sharing in terms of once you’ve got that alignment around the value you’re delivering you’re aligned on the belief system, price becomes much less important. Luke, what are your thoughts?
Luke Hohmann 42:41
Well, actually, I I agree and disagree. So what he what he said is what I wrote what he wrote here, and it may not be what he meant, but what he wrote was, I’d say that pricing should be set based on the value current clients are receiving from your solution or product. Absolutely. In fact, that is the central part of the first part of our book, and it’s the first piece of the pricing Canvas is what’s your customer, what’s the value? What’s the customer benefits? And in some cases, are you providing more value than you need to use because customer doesn’t realize the benefit and how does the benefits work as a system? So I Anthony, we agree that that is the foundation. However, now we start to get into the subtleties of the psychology of what what kind of buyer Are you selling to? Are you selling to a value conscious buyer or a convenience buyer? And when we look at that, you could argue that that is also part of benefits. But one of the biggest mistakes we see that software enabled solutions make or the product managers make is they overweight, functional benefits and or tangible benefits and they underweight intangible benefits and an example of this is one of our customers is full cast and they were talking about how they compete with Oracle. And all they kept saying to us was, well we’re not as feature rich as Oracle and after a while I just said look, if you’re not as feature rich as Oracle, then why are you in business at all by definition of what you’ve just said you should fail and yet you’re growing. You’re growing great. Why are customers buying from you? And then they started telling me well, we’re easier to work with an Oracle and our pricing terms are more flexible. When when a customer has a problem. Our sale our customer support and care team tends to answer their questions more effectively according to the feedback on my great all of those intangible benefits matter enough that people are choosing you. So now how you put a price on that isn’t always so straightforward. Was that worth 1000 A month or is that worth 3000 a month? That’s where pricing I still think it’s a little bit of it can be complex. Okay, let’s move into the actual questions and answers Matthew Abram has a question. Pricing is a collaborative activity, but generally accountability for pricing lies with product management, as that function owns the p&l in the agile environment. If pricing accountability is with a collaborative team, then who owns the p&l for the product? Well, I would actually say Matthew that that’s why in many agile environments, product management does own pricing because they don’t they do own the p&l. However, in very large organizations, we’ve often we have seen that that centralized pricing group owns the p&l. I’m not arguing whether it’s the perfectly right choice. I’m simply saying that there are some other patterns and in some organizations I have seen product marketing on the p&l and product management really is much more technically oriented. And and so then pricing kind of coalesces with the p&l into a different group. So i i We’re not arguing for a uniform answer. We’re talking about the patterns that tend to create the best success but I would agree with you, Matthew that that part of the pattern of pricing is also the pattern associated with with the profit and loss and sometimes to Melissa’s point, and most I’ll let you jump in here this is where the operational value stream is kind of who owns the operational value stream is often who owns the p&l.
Melissa Reeve 46:38
Yeah, and I think that, you know, I’m reading some subtlety in here too, around the ownership versus the collaboration. And that we’re we’re not saying that there shouldn’t be a mean steward right there. There does have to be that accountability built in. And the accountability probably isn’t with the entire team. You know that there is still somebody who makes that decision, ultimately for the team. But we’re saying that instead of arguing, I own it. No, you own it, that we shift our mindset towards this more collaborative approach, and that we make better more informed decisions. I don’t know that we’re gonna get to the point where we have collaborative accountability for the p&l. Um, you know, I, you know, as I even as I was saying that I was like, well, there’s certain incentives that you can do to make sure everybody feels like they’re an owner of that or have a have a stake in it. But ultimately, you you’ve got to have some structure, even if it’s lightweight structure to help guide these things.
Luke Hohmann 47:51
Yeah, just like the architect in the technical solution. When there’s competing ideas and how to solve something. The architect is going to kind of make the final decision. And I’m going to argue for conceptual integrity. So we were working with a company, Endeavour, they’re out of Montreal, and we were finalizing their new pricing and packaging, and we made one small change. So that every component is has the same structural consistency, which created conceptual integrity and the marketing team on the call with us. We’re like, Yeah, we can communicate this. Now. We don’t have to say the product is this and this and that. It’s this. We can say it’s this and this and this and it’s completely uniform. And there’s conceptual integrity. Okay, last one is super ham. BBs says every organization works for profits having different value streams in place in pursuit of this organization’s trying to get maximum throughput. But if project buildings are not properly done, then how can we correlate profit streams with productivity, which never meets and always has a team burnout? Boy, that’s a very, very complex question. The way I would suggest this is that it sounds like it’s dealing with not necessarily product oriented pricing, but service oriented pricing. And our focus in this webinar was truly product or solution pricing, not services, pricing, and so Subramanyam I think that that the the idea that you’re raising is actually quite a hard problem, and we might lodge a different webinar with Melissa. But service pricing has kind of different physics and different structures then product and solution pricing. I don’t know if you want to add anything to that. Melissa.
Melissa Reeve 49:44
Yeah, I mean, I agree with you because we’re introducing now this this concept of productivity, right, and how do you price for productivity? And I feel like that is a slightly different question. It’s a very valid question and, and, as you said, a complex one. So thank you for submitting it. And I think there is probably a whole other webinar if not a whole other profit stream canvas that could be created around that.
Luke Hohmann 50:13
And I get nervous about that too. Because when I’m pricing for productivity, I’m, I’m gonna go back to what Anthony said about value right? The start the foundation is value. There’s this great funny joke that says, This person is working in the plant the manufacturing plant for 40 years, the best maintenance technician and they retire and then the next week the machine breaks and they come in and he gives them an invoice and it only takes him 15 minutes to fix the machine and his invoices $10,000 and the plant managers. You work 15 minutes and I’m not paying you $10,000 So he sends him a new invoice that says 40 years of experience and learning how to fix machines 15 minutes of providing advice $10,000 And so you have to be really careful about this notion of efficiency because, again, you’re going back to the Anthony’s comment. It starts with value and the impact of that value to your customer. And, and efficiency, if measured only in time can be detrimental to the value that you acquire as a service provider. And so, yeah, maybe we maybe we’ll go ahead and have another webinar on that. I think I think we’re done. Melissa, thank you so much.
Melissa Reeve 51:39
It’s been such a pleasure. I mean, I you know there’s so much to cover in pricing. We choose one little slice. I hope our audience found it a value and I know I learned something. So thank you for having a for doing this webinar together.
Luke Hohmann 51:53
Excellent. Thank you, Laura.
Laura Caldie 51:55
I’ll just wrap it up by saying we’ll be sending out the link to people who’ve registered and if you do think of any other questions that you didn’t ask and you want to all of our information is in that email that we’d be sending them out. So you know your your question might end up being the next webinar topic. So definitely send it to us if you have more thoughts on this.
Luke has been involved with Applied Frameworks since its founding in 2003. He later started Conteneo, a collaboration software company that Scaled Agile acquired in 2019. While at Scaled Agile, Luke served as a SAFe® Framework Contributor and Principal Consultant, with significant contributions to the SAFe Agile Product Delivery (APD) and Lean Portfolio Management (LPM) competencies and the SAFe POPM, APM, and LPM courses. His books include Innovation Games: Creating Breakthrough Products through Collaborative Play (2006), Beyond Software Architecture (2003), Journey of the Software Professional (1996), and the upcoming Software Profit Streams (2023).