Are you chasing margins, or volume? Profits, or penetration? You generally don’t get do both, as Mark Billige of Simon-Kucher recently noted in a sharp, engaging Subscribed Institute presentation.
It’s usually an either/or proposition. Let’s take a look at two trillion-dollar case studies.
Contrary to popular belief, Apple isn’t really concerned about unit sales. They’re much more obsessed with generating a higher ARPU (Average Revenue Per User). They map revenue to individual users, and use an array of services and products to drive high profit margins around those users.
Apple makes great products, and lets their market come to them. They’re happy to concede the mid-market to others. They are a high-margin, low market-share company.
Amazon is a low-margin, high-market penetration company. As Jeff Bezos has noted many times, his company is relentlessly focused on driving lower costs through distribution and infrastructure. They were content to spend twenty years without profits in order to gain the market share they enjoy today.
You need to pick one of those two primary strategies. And then be disciplined about pursuing it. Because they’re inherently antagonistic, and it’s easy to get stuck between the two (here a certain Greek myth comes to mind).
In the B2B space, most management teams tend to favor ARPU over market share. But if that’s your strategy, then is your sales group really willing to walk away from deals that don’t make sense?
Many B2B companies tolerate significant swings in their pricing that they would never concede in their spending. In pursuit of quick deals, they lose their discipline. They get stuck in between.
Determine your North Star metric (the possibilities are endless, but they tend to be associated with either margins or volume), then execute on a disciplined pricing strategy in pursuit of that metric.
Learn more at Subscribed.com.