Product Pricing: Early Involvement of Finance
How often we have seen business & sales come running to finance to price the product in a jiffy, as customer is waiting and sales are already committed to deliver pricing yesterday. On top of that, pricing is not supposed to ask any question or understand anything; what product is meant for? or what customer problem does it solve? Asking Sales about what the customer is willing to pay or what is 1-3-5-year sales projection etc. is an absolute no-no, as most of the time Sales don't even know. But it is expected that pricing team will somehow provide an optimum price without over or under pricing the product with perfect commercial structure.
About 80% of companies don't talk about price early in the product development process. — and instead, wait until the last minute — according to Simon-Kucher's study.
A well thought of product launch should involve finance/pricing professional from inception and keep them involved throughout the product development journey, market research, talking to customers and execution of Go-To-Market strategy. Pricing should not be seen just like a finance function but a critical member of the team who will shape the product life-cycle and will be the difference between success and failure. This will ensure we have well thought and finalized pricing & commercial structure nailed down before sales make their first pitch to the customer. Pricing can also pitch in for pricing and commercial discussion with the client along with sales. This takes pressure from the sales team and lends a lot of credibility to the sales process.
Killing a product midway is perfectly alright if it doesn't make sense commercially and cross-functional team should ensure to test product and commercial feasibility time to time in product development life-cycle. Promoting risk-taking adventurous behaviour is a must in product development, but time to time checking with ground reality is also paramount.
Madhavan Ramanujam has hit the nail of very pertinent product pricing issues in his article. I totally agree with his tagline "It's Price Before Product. Period." And recommend this article to pricing professionals.