101 Ways Pricing Is Choking Your Business
#1: Lack of an Excellent Culture in Pricing
To begin with legendary Peter Drucker opined that Culture eats strategy for lunch! To win the pricing game not only do you need to do the technical stuff right but your organization must also inculcate right conditions to play and win the pricing game.
You have heard/learnt about the different Ps of the marketing mix — originally these were four as articulated by Philip Kotler — Product, Price, Promo, Place (an Interesting Article here) and other mutations depending on who you read these days.
To paraphrase Nagle and Muller from their book Strategy and Tactics of Pricing, a business combines the marketing mix elements in an attempt to create differentiated value for its target market. However price is special because effective pricing is the only element that allows a business to capture some of the value created for itself in the profit it earns.
Price serves a number of important functions along the customer journey of any enterprise from signaling a firm’s competitive positioning (awareness and consideration), to facilitating purchase (conversion), to building brand love through an outsized value to price ratio (loyalty and advocacy). All these outcomes will eventually determine whether a business will be here and thriving tomorrow or it would have gone bust.
Because of how important pricing decisions are, understandably they are some of the most difficult decisions that management teams have to make. One will be forgiven for thinking businesses have systemized their approach to making such important decisions. Yet! many management teams approach pricing in an ad-hoc manner, dread the thought of changing price (for good reasons) and only make pricing decision when forced to by competitor moves or by changes in the macro-environment.
How then can businesses systemize their approach to pricing?
The key is to create a pricing culture within the business (whether big or small) that takes pricing decision from the realm of ad-hoc fly-by-night reactions and make them routine and predictable.
There are FIVE key building block to an excellent pricing culture
First, Someone must be in charge.
Institute a clear demarcation of pricing roles and responsibilities. To do this a pricing forum is recommended. The forum is a cross functional team chaired by the general manager which i) sets and approves changes to pricing strategy, ii) serves as a clearing house of pricing opportunities and issues iii) approves trade investments iv) approves any changes to pricing policies and supervises capability building efforts in the organization.
Secondly, align objectives across different teams in the business
The work of the sales team is to sell right? Someone famous once said there are two groups of sales people in any business — those that sell and those that help sell. Sales is everyone’s job! but what are they selling? Everyone is working hard to sell the different elements of the marketing mix and MOST importantly the pricing element because that is the only way your business will harvest some of the value sowed in the marketplace. Everyone from Sales to finance to supply to HR should be concerned with executing pricing to deliver value growth for the business. Therefore their incentives should be aligned so they can show up (at customer meetings!) with one voice.
Thirdly, what gets measured gets managed (another one from Peter Drucker)
Pricing is both an Art and a Science and therefore any business can get better at pricing through systematic planning, executing, tracking and learning from pricing decisions. Start by consistently setting and tracking pricing decisions using the the right metrics, at the right level of the organization, with the right frequency in order to understand the impact of pricing decision on your end customers, intermediaries and the organization.
Do your know the right metrics to set and track for your organization
Fourthly, In God we trust, all others must bring data! so said W. Edwards Demming.
Yes, to win the pricing game your business must collect, organize and mine data to reach the right insights that can be turned into a source of competitive advantage. With the growth of data that a business can collect, the Science part of pricing has gotten more complex and therefore building the right tools is imperative. By tools i don’t mean complicated AI type algorithms from 2063 (not just yet depending on your organizational size), but rather can range from simple old age templates like a Pocket Price Waterfall, Price banding, Strategic Price Indexing etc
Lastly , Create the right conditions to incubate a new culture of Pricing excellence
Embedding the right culture will require a shift in mindset within your business. This will take great courage from the leadership in the business to make the requisite investments in build the people capabilities, creating an environment of experimentation, empowering frontline teams to be able to execute the pricing agenda, collecting, mining and using data to make decisions and most importantly staying the course of the transformation as organization learns, breaks things and grow. Afterall Rome was ot built in one day!
San Tzu advised “Treat your men as you would your own beloved sons and they will follow you into the deepest valley”
