Excited about digital transformation? What about price and position?
Is there anything more basic in business than price and position? Digital transformation changes your customer’s perception of how you price (as well as your price). It also changes your market positioning.
A company may well launch into digital transformation in order to deal with supply chain problems and to reduce costs. But it would be best to start with value by evaluating price and position, because that is always going to be at the core of any digital transformation.
So how does the mainstream writing on pricing and positioning deal with digital transformation?
The three classics on pricing only marginally deal with digital transformation.
Thomas A. Nagle’s “The Strategy and Tactics of Pricing, 6th edition really started the whole approach of looking for differentiation and value-based pricing. Nagle developed his ideas especially through industrial products, far removed from retail and end-customer markets. Although Nagle touches to some extent upon digital transformation, the core ideas of “The Strategy and Tactics of Pricing” are pre-digital. (Disclosure: the author originally studied pricing with Nagle.)
Hermann Simon, founder of the leading pricing consultancy Simon-Kucher explains “Why Pricing is Not Primarily About Price”, points out that differentiation and value come before price. Simon’s classic “Pricing in the Digital Age” does address some of the key innovations in pricing that come with digital products, although Simon does not directly address digital transformation.
Madhavan Ramanujam’s “Monetizing Innovation” is based on experience with 150+ projects for pricing consultancy Simon-Kucher, Ramanujam advocates putting pricing first before everything else: “….the root of all innovation evil is the failure to put the customer’s willingness to pay [WTP] for a new product at the very core of product design.” “It’s Price Before Product. Period”. This is an important point (72% of innovations fail to monetize) but Ramanujam’s focus is not digital transformation per se*.
On the positioning side, the mainstream writing again largely pre-dates the notion of “digital transformation.”
The classic mainstream writing on positioning is Philip Kotler and Kevin Keller, “Marketing Management,“which popularized the idea of the “marketing mix” and the “4 P’s” (price, position, placement, product). Now in its 16th edition, the text has been updated to include modern company examples but the work pre-dates the notion of “digital transformation” as it affects positioning.
Also frequently thought of, naturally, is Al Ries and Jack Trout’s Positioning: The Battle for Your Mind. Again, it’s great writing – especially great anecdotes on positioning – but largely pre-digital.
There is a lot to be learned on positioning from April Dunford’s “Obviously Awesome: How to Nail Product Positioning so Customers Get it, Buy it, Love it”. It takes off from experience determining positioning for new product from both large and startup enterprise software companies. In each case, it starts by looking at competitors as the frame of reference for how customers will perceive positioning. The perspective, however, is really positioning of new products, rather than the impact of digital transformation on positioning entire business.
The leading consultancies are the ones that have been really dealing with digital transformation head on. Firms like McKinsey, Bain, EY, Deloitte, PwC, and also the software-oriented consultancies, such as AIM Computing and Slalom Consulting, all have a lot to say about digital transformation. How do they look at price and position in that context?
[to be continued]