The Natural Navigator

“Natural navigation is the art of finding your way by using nature.  [It is] the rare skill of being able to determine direction, without the aid of tools or instruments and only by reference to natural clues including the sun, the moon, the land, the sea, the weather, the plants and the animals.  It is about observation and deduction.”

Tristan Gooley, The Natural Navigator

What if you found yourself in a wild, unfamiliar territory and needed to find your way to a destination, instrument-free?

That’s right, no GPS.  No phoning or searching the Web for directions.  Not even a map or compass.

How could you do it?  Tristan Gooley’s book shows how.  It’s an artful blend of nature essay and field manual, sharing lessons derived from people who navigated on land and sea before the advent of compasses and sextants, let alone satellites and mapping software.

The secret lies in learning to draw inferences from the clues at hand.  For example, Gooley describes how one can use a shadow stick on a sunny day to divine true north.  Or read the directional implications of tree shapes, the wind, stars, sea swells, and many other clues.

Natural Navigation toward Appropriate Pricing

In a recent video and white paper, Mike Rice and I showed how companies can mine their own invoice data to find patterns indicating where their prices can likely go higher.  Powerful as that is, it’s most useful to companies generating abundant data from repetitive transactions on standardized products or services.  For them, computing power and analytical tools make inferences possible that not many years ago would have been inaccessible.

Most companies don’t have all that data, though, because their products and services are new-to-the-world, or customized, or simply generate small numbers of transactions.  Executives in these companies can’t go to a big database and develop graphical reports that allow them to draw inferences about where their prices could and should be.

If lacking abundant transactional data, how can executives do a better job in estimating the range for customers’ willingness to buy, and get better at calibrating the price range in which they should be willing to sell?

Carefully gather, organize, and interpret the clues available.  These executives must become Natural Navigators who find the right direction for their pricing.

The Pricing Profile as Navigational Aid

In my February blog I shared the Daring Caution Pricing Profile from my book and discussed how to use the Profile for:

• Understanding and communicating how various people in the company place different weights on the four factors in the Pricing Profile as they make decisions about prices
• Aligning the company’s people with senior management’s intent, so executives can make sure that their people involved in setting and negotiating prices use an appropriate mix of decision factors.

We can also utilize the Pricing Profile as a natural navigator’s tool for finding a roughly correct direction for prices… a shadow stick, if you will, that helps us figure out where to find North.

The Pricing Profile can provide a framework for making intelligent tradeoffs among valid pricing decision factors:

• Qualified Customer Value – the price that a qualified customer would be willing to pay if based solely on the perceived value of the offering and the customer’s degree of Brand Preference
• Comparative Pricing – the company’s current and/or past prices, competitors’ prices, and the prices of substitutes.  (Customers’ price expectations are usually conditioned by comparative prices.)
• Cost + Margin Rate – the estimated cost to provide a particular product or service, marked up by a multiplier of cost, or by adding a target or minimum margin percentage to cost.
• Concern with Volume / Share – the desire or need to obtain and retain a sufficient volume of business

The two external factors (Qualified Customer Value and Comparative Pricing) interact to define the range of prices at which a customer or segment willingly buys.  There’s often a tension between the two, with Comparative Pricing exerting a gravitational pull that tugs price down from Qualified Customer Value.

The price range within which the company is willing to sell is a function of the interaction between Cost + Margin Rate and Concern with Volume.

Executives can use the interplay between these four external and internal factors to set the bounds within which prices are set or negotiated.  So the Daring Caution Pricing Profile shown below can be used in finding the right direction for pricing, and as a tool for aligning the company’s team.