Sales Tales #7 – Round pricing in a square model – recipe for failure ?

This is a great example of how revenue share deal went bad and caused a huge pain to all involved. It also serves as an interesting experience for B2B sales leaders.

Almost decade back a deal was struck between a global technology company, it’s reseller and a tier 1 telecom operator. This involved operator selling a technology service to businesses on an on-demand model. It was one of its kind service and expected to sell like hot cakes and more than 2 years were spent in putting together solution, contracting, productising and launching in the market.

In spite of a great strategy, product etc, the service failed to take off and caused huge losses to all. Reasons –

Reason #1 The operator decided on a opex based customer https://floripa-manchester.com/about/  price and the vendor worked backwards to arrive at the Capex based price. The reseller however did a revenue share with the operator creating a “bridge” between the two completely disconnected pricing models.

Reason # 2 Mid way into the launch of the service, the competition got a whiff of the product and launched a competing product at 50% of the price. This made the operator’s service completely noncompetitive.

Reason #3 Many months were spent on understanding how this service can be salvaged however this posed many issues – how can the vendor do retrospective price change as the billing was already done and revenue recognized. To match the competitive pricing, the vendor’s discounting ask was humongous and not practical. More so the model was so inflexible (Capex to opex) that any future pricing change would lead to making the business case negative.

Outcome & Learning – All the three parties decided to take a hit and shutdown the project. Pricing for monopoly is never a good idea and there must be enough flexibility to counter a competitor at some stage. Also, force fitting commercial models is never a good idea and typically does not last for long.