Pricing strategy

Kelli Rodda

I saw something on Facebook a few weeks ago that made me raise a power-to-the-people fist in the air and shout, “Yeah, man!”

The post read, “Good trees ain’t cheap and cheap trees ain’t good.”

I want that emblazoned on a T-shirt or a button to wear at the trade shows.

It was posted by Christopher Uhland, CEO of Harmony Hill Nursery. You may remember him from our April issue where we profiled a sampling of the next generation of green-industry leaders. His nursery in Downingtown, Penn., grows specimen shade, flowering and evergreen trees. He told me I could, “quote him on that.”

His post got me thinking about prices. Do your prices reflect the value of your product?

But this isn’t just a conversation for growers. It’s for retailers, too. These two entities must communicate better and strategize about raising prices.

Pricing needs to be based on value delivered to and perceived by the customer.

Sean Silverthorne gave a good example in his column in MoneyWatch. PACCAR, the maker of Kenworth and Peterbilt trucks, has commanded premium prices for 70 years in a largely commodity business by relentlessly communicating value (the trucks save gas and cost less to operate over time).

Yes, price does matter when times are tight, Silverthorne said. And you likely are going to have to take some bottom line hits to remain competitive. Instead of being a price slasher, “use your customer data to peer into your market segments and seek out the differences and opportunities often hidden in current pieces of business.”

Researchers from Harvard Business School revealed:

1. Pricing builds or destroys value faster than almost any business action.
2. Performance pricing seeks to maximize both the customer benefit and the selling company’s profitability.
3. The idea is to create more space between the value provided to customers and your cost.
4. Performance pricers make attractive returns in almost every business—at least over the full business cycle.

A successful performance pricer has a strategy and practices for identifying where they compete, delivering performance value to those customers, and extracting profit via their pricing process, said Ben Shapiro, the Malcolm P. McNair Professor of Marketing Emeritus at Harvard Business School. Most importantly, Shapiro said, performance prices “do not set price on a cost-plus basis or adopt ‘average’ pricing policies. Many executives believe cost-based prices are easier to explain. But when you are providing differential value, the issue is framing price appropriately.”

There is no common phrase for the spread between customer value and price, Shapiro said.

“Economists call this ‘surplus,’ a word that suggests it is discretionary. For good reason, surplus never caught on in business lingo; try selling something at exactly its perceived value and you will likely fail. We call this gap ‘customer benefit,’ and it is the driving force for customers to buy. They want to receive more total value than the price paid, and they want that difference to be as high as possible. That is what defines a good deal: From their perspective, those customers got more than they spent.”

Each member of the green industry chain must be on the same page in terms of communicating value to the customer and pricing. Talk to each other, please!