A recent piece in the Harvard Business Review entitled The Promise of Blockchain Is a World Without Middlemen lays out the case for decentralized networks in evangelical language. As the author writes, “Decentralization offers the promise of nearly friction-free cooperation between members of complex networks that can add value to each other by enabling collaboration without central authorities and middle men.”
But is it a given that such a world is what customers really want?
The Job of the Middleman
Middlemen make for an easy target for disgruntled customers and observers of the economy. At times it can be unclear how they are adding value to a transaction. Sometimes it looks like middlemen are simply inserting themselves into a transaction to increase costs and take a cut.
When is the last time you really revisited the assumptions baked into your pricing strategy?
Technology enables much finer control over how you price goods and services, which means you’ll be hearing a lot about “dynamic pricing” in the coming months. Dynamic pricing refers to the practice of updating prices based on current market demand and supply. While yield management, a form of dynamic pricing, has been practiced in industries such as airlines and hotels for years, technology is enabling a wider range of companies to adjust their prices according to market dynamics.
Upstarts and even incumbents can use dynamic pricing strategy to upturn an industry. Some industries may think they’re immune to such developments, and it might seem odd to imagine certain kinds of companies practicing dynamic pricing — seeing bananas sold with an electric price tag changing amount every few minutes would be unusual. Until it’s not.
Based on my pricing strategy consulting experience, I’ve pulled together five aspects that differentiate the companies dedicated to pricing excellence from those that can only hope to catch-up. Although specific situations vary, I’ve noticed these pricing best practices time and time again:
Focusing on value delivery
Hiring the right people
Tying pricing into wider decision making
Pricing as a verb, not a noun
When salespeople are encouraged and empowered to get to know their customers, and what they want, well, it leads to the growth of decentralized knowledge that’s critical to sales success, but also useful to the rest of the company.
Most consumer-facing companies strive for price transparency. Understandably, consumers want to know how much a good or service will cost before they make a purchase — but what about pricing transparency?
Not transparency over the final price, but transparency over the pricing process?
It’s important to separate the two, because companies can exhibit one or the other, or both, or neither. Companies can change their approach over time as well. Let’s take a look at some quick examples.
Conventional wisdom used to be that the Internet would destroy middlemen. Middlemen, the thinking goes, don’t create any real value, only feeding off of the time or knowledge constraints of others. Once people had access to the wealth of knowledge and timesaving that the Internet provides, middlemen would cease to be valuable.
Marina Krakovsky argues in a compelling new book that conventional wisdom was wrong. The Middleman Economy argues that, while transaction costs have decreased for everyone, they have decreased at an even faster rate for professional middlemen, leading to have an even larger role in today’s economy. The book’s subtitle, “How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit” suggests that middlemen are both more ubiquitous and necessary than even most professionals realize.