I recently saw a short white paper on pricing strategy in which they referred to the 5 Cs of pricing. If you do a web search of that term, you will find millions of entries. Most of those links will lead to articles, blogs, and videos that list their version of the 5 Cs:
- Company objectives
- Customers
- Costs
- Competition
- Channel members
Personally, I subscribe more to Tom Nagle’s version of the 5 Cs from The Strategy and Tactics of Pricing:
- Comprehend
- Create
- Communicate
- Convince
- Capture
Setting prices can be both simple and complicated. It is simple in that your customer wants to know, “How much does this cost?” or “what is the price per unit of these items?” It is also simple if you rely on rules of thumb like “cost + 25%.” However, it is complicated, because those simple rules of thumb are rarely the best answer. Sometimes they can result in a price that doesn’t win the business and sometimes those rules of thumb can result in prices lower than what you could have successfully charged. One way to manage that complexity is simple – remember Nagle’s 5 Cs of pricing.
- Comprehend the key value drivers for customers. Make sure you know what drives success in the customers’ businesses and how they measure success.
- Create value for customers. Make sure that you and your company deliver the products and services your customers want and need. Follow up on questions and issues. Avoid the urge to take shortcuts, and take the steps that ensure your customers are satisfied.
- Communicate the value you create. Talk with your customers and explain the tangible features and intangible benefits of buying from you.
- Convince customers that they must pay for value. If you and your company are creating value and ensuring that your customers recognize that value, have confidence when you ask for prices that reflect that value.
- Capture value with effective price tactics. Effective tactics include recognizing when you have an advantage, rigorously qualifying competitive prices, recognizing which products drive a customer’s decision and which products are filling out the shopping basket, and getting something in exchange for any price concessions you make.
Simple things are easier for us to process and manage. Unfortunately simple approaches to pricing will give us poor results. Help yourself and your shareholders by managing the complicated world of pricing and remember the 5 Cs of pricing.
I think the 5 C’s of value can apply in ever business objective you can think of. Its about putting customers first. I used this concept to apply in digital marketing and it makes a lot of sense.
An excellent article. This article was handy and informative to me. I learned a lot about the 5cs of marketing.