Pricing can be a significant profit center within a business—if the foundation that underpins pricing has the proper people, processes, organization capability, performance management, and systems and tools.
Most companies have recognized the bottom-line impact to gained through valid pricing. Awareness by itself is not enough. Tapping the full promise of pricing requires an infrastructure to drive real and sustained pricing performance. With such a foundation, a company can establish and strengthen pricing activities by creating deliberate decision processes, a specialized pricing organization, mechanisms that appropriately measure and reward pricing excellence, and robust support tools and systems.
Ideally, there should be a corporate-wide executive maintaining the Pricing Function, with teams under each BU as an independent resource team/function. The executive in charge should be responsible for coordinating the roll-out of pricing methods, counseling sales managers and sales reps on the use of formal pricing methods, controlling the impact of pricing metrics and strategies, and embedding pricing methods and tools in the company’s culture.
Fundamentally, this executive should be responsible not only for managing day-to-day pricing activities but also for fostering the proactive, continuous-improvement mindset that separates high-performing pricing organizations from merely good ones.
Corporate Hierarchy:
We also recommend (eventually stand-alone) separating the pricing group from any unit responsible for negotiating prices with customers. This division creates a healthy tension between price negotiators and price managers that is difficult to maintain when price management resides within sales groups.
Staffing:
An organization responsible for a significant portion of a company’s earnings requires a deliberate recruiting strategy, compensation commensurate with the importance of this unit, and clarity about the types of skills and attitudes needed for each of its roles.
Key recruitment patterning:
- Create a well-defined career path: employees should see the pricing organization as an excellent stepping-stone to career advancement
- Feedback and bi-annual survey for critical roles, because members of the pricing organization must interact effectively with so many groups
- Monitoring key opportunities for training, as these roles should be changing dramatically over the first five years of inception.
Yearly Calendar of Events:
- Internal, Pricing Readiness Assessment to evaluate the overall health and vitality of each business unit and tracking measures to compare annual changes
- Review and Augment company's core pricing strategy, aligned with the overarching go-to-market business strategy.
- Help define, resource, and implement new pricing tools and processes:
- Special Projects Planning: segmentation refresh, new software platform, net price optimization, strategy reconciliation, exploring new ground opportunities (pricing bands, waterfalls, cost-to-serve modeling, etc.)
- Compensation alignment based on the strategic path set from the leadership council and processes from last year’s results.
- KPI refresh (or creation) based on the above actions
Quarterly Calendar of Events:
- March, April, May - Price setting season
- June, July, August - Communications, value messaging, and update value models
- September, October, November – Model updates and improvements: contract planning, forecasting, and commitment modeling
- December January February - Annual Planning to include promotions, new product introduction pricing and planning
Monthly Calendar of Events:
- On-going analytical maintenance: Bundling opportunities, promotion analysis, frameworks for identify pricing opportunities—from pocket-price waterfalls to price bands to value maps
- Cost negotiation, support policy creation, and process tweaking
- Cross departmental training (may move this to quarterly)
- Pricing Council creation and steering
- Strategy support and augmentation based on Monthly KPI Reporting
- Competitive data cull (audit of the competitive data review and scoring)
Weekly/Daily:
- Pricing Help Desk by functional category, time tracking; Sales, Demand Forecasting/Planning, Marketing, and Ops assistance
- Maintenance of the consumption database
- Monitoring pricing effectiveness
- Competitive data review and scoring
- Off contract discounting
- Short term promotions
- Ad-hoc analysis
Departmental Responsibilities Include:
- Lead and direct pricing strategy formulation and take necessary pricing actions to enhance profitability, ensuring integrity and accuracy in all pricing matters.
- Assist with pricing negotiations of customers’ proposals
- Prepare BAFO (Best and Final Offers) to assist with OEM managers, given the small number of OEM’s this may turn into just a tool to update.
- Conduct oral presentations, field research, and discount revisions with an agile mindset this will require thinking about the going rates for similar products in the industry, to remain competitive.
- Maintain and regularly update a pricing history database.
- Perform financial evaluation to assess pricing action effectiveness.
- Define new business procedures, evaluate resource requirements, and stimulate implementation or maintenance of pricing system.
- Manage total pricing procedure, enhance processes to make most of efficiencies and ensure timely response to market conditions.
- Manage and supervise pricing analysts to support activities inclusive of new price generation and discrepancy resolution, etc.
- Perform collaboration partnerships with buyers, product managers, and sales department to ensure integrated profit maximizing approach to market.
- Analyze financial impact of price approach in view of overall history as well as profitability of customer.
