101 Ways Pricing Is Choking Your Business

#17 Lack of and/or Poorly Executed Pricing Policies

Imagine for a moment how many pricing situations your teams are facing each day. If for instance you have a 10 man sales team that has to to visit 20 customers each day to sell 7 SKUs and imagine further that your customers are out to negotiate pricing on each SKU (a pragmatic approach in this inflationary environment!) that is potentially 1,400 negotiations your team has to make in a day. Now extrapolate that to the number of customer they have to visit in total, let us assume a 10 days sales cycle. That number has ballooned to 14,000 pricing situations to be handled. Without a clear policy framework to guide these, you will need to hire an army of people to manage price terms and conditions — something not core to your business.

According to www.managementstudyguide.com business policies defines the scope or spheres within which decisions can be taken within an organization. It permits management to deal with the problems and issues without consulting the top honchos for a decision at every time turn.

Have you ever seen your company’s pricing policies?

Many of us can point out to the big binder with our business' policies dealing with almost everything from complex matters like business continuity in case of a catastrophe through to the mundane like when we can take lunch breaks.

A very, very small number of individuals can point out their firm’s pricing policy! Why is this the case given that Pricing is one of (if not) the most important driver of business performance?

A pricing policy provides a framework within which commercials teams (read Sales, Marketing, Finance, Supply) can make consistent and repetitive decisions for each pricing situation. It provides a ready solution to recurrent questions like; How much discount should I advance this customer? How much of our costs can we recover through pricing, how should we react to competitors changing their pricing? and many many more conflicting situations!

As Herb Cohen noted in his book You Can Negotiate Anything, price is the outcome of internal negotiations within a firm and therefore you can expect that your customers will seek to negotiate price as well. Be it the ‘difficult’ category manager who keeps you waiting for three hours to ‘mellow’ you down or that pesky customers trying to negotiate down the pricing of a TV in the store despite the huge pricing banner!

Knowing then that our customers will negotiate and game pricing to extract a bigger share of the value created in the market, Why then do many businesses manage their pricing in an ad-hoc manner? Is it a capability issue or is it sheer negligence?

To remedy this situation, your business needs to tackle and systemize how decisions are made in the following areas, Failure to do so will continue to lead your business down the road of ad-hoc decision making with each team pulling in different directions. The end results is to suboptimize your revenue and profit growth.

Lastly, to ensure that pricing policies are having the desired effect your organization must track their implementation and pedantically document and manage down exceptions.