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At 9:00 A.M. on Monday, May 2004, Rob Erickson, QTX Product Manager; Hillary Hanson, Financial Analyst; and Brian James, District Sales Manager; were preparing for a meeting with Mark Jefferies, Vice President of Marketing, at Clearwater Technologies. The meeting’s objective was to establish the end-user pricing for a capacity upgrade to the QTX servers Clearwater offered.

No one was looking forward to the meeting because company pricing debates were traditionally long and drawn out. Because there had already been several meetings, everyone knew that there was no consensus on how to determine the appropriate price, but company policy insisted on agreement. Only one price proposal went forward, and it had to represent something everyone could accept.

When Jefferies called the meeting, he commented:
We’ve struggled with this pricing issue for several months. We can’t seem to all agree on the right price. Finance wants the price as high as possible to generate revenue. Sales wants it low to sell volume. Product management wants the price to be consistent with the current product margin model. We’ve debated this for quite a while, but we need to finalize the third quarter price book update before June in order to get it into print and out to the sales force. We need to get this done.

Clearwater Technologies, Inc. was a small, publicly traded technology firm outside Boston. It was the market share leader in customer relationship management (CRM) servers for sales staffs of small- to medium-sized companies. Four MIT graduates had founded the company when they saw an opportunity to meet a market need that larger firms ignored. Unlike the CRM systems from Oracle or SAP, Clearwater customized the QTX for companies with sales forces of 10 to 30 people. Clearwater had been first to market in this particular segment, and QTX sales represented $45 million of its $80 million sales in 2004.

The QTX product line represented Clearwater’s core franchise. Clearwater’s...
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