Establishing a pricing culture excellence within an organization does not have to be highly complex or intimidating, but it does require discipline and the commitment of multiple individuals carrying out a few co-ordinated activities. If you think your organization is willing to move beyond its current “comfort zone” and adopt some new tools, analytics, and processes that will take your to the “growth zone”… then keep reading!
1.Senior Leadership needs to play an active role in instilling a focus on pricing within your organization.
A Simon Kucher study showed that companies whose C-level executives took an active role are 30% more likely to expect strong profit growth three years out. Building a strong pricing organization involves senior-level commitment to analytics, interpretation, and execution of pricing strategy.
2.Centralize pricing authority within a dedicated pricing organization.
Companies with a dedicated Strategic Revenue Management Team are far more likely (10-20%) to take pricing actions than organizations that do not have one. Sales & Marketing should be brought into the strategy-setting process, but the pricing organization (typically residing within Finance) should own final approvals. This team needs to have the authority to establish policies & procedures, question deals, and put teeth into pricing policy.
3.Drive visibility of pricing decisions by utilizing tools that allow assessment of KPI’s.
These should include market & account-level threshold analysis of key “price-promoted groups” in the areas of:
- Retail gaps to competition
- “Out-of-bounds” tracking
- Frequency & depth of discounting
- Mix management
4.Commit to a 3-year plan.
Be prepared to take baby-steps initially in order to re-program your company’s DNA around pricing infrastructure. For example:
Improve information collection & analysis
Make better-informed decisions on brand value
Put the right people in place
Leverage a portfolio approach
Implement usage of pricing models
Measure initiatives & refine strategy
Establish pricing ceilings & floors
Instill controls around discounting & trade spend
Publish pricing processes & guidelines
Work collaboratively with customers to develop joint understanding of value
Make full shift from cost-plus” to “value-based” strategy setting
The commitment to building pricing infrastructure, and eventually confidence, within your organization requires time, patience, and tools that address both strategic and tactical opportunities. The payback is proven and significant. Some of the well accepted norms as quoted by Holden and Burton are as follows:
- A 1% price improvement translates into an 11% net profit increase
- Getting tactical pricing processes under control to eliminate unnecessary discounts yields a +20% improvement in profit
- Execution of both the strategic & tactical initiatives often drives > +20% profit improvement
Execution of a simple plan such as that described above can take your organization from the “comfort zone” to the “growth zone”!