Most people understand that pricing is complex – and for good reason. For companies that sell thousands of products to thousands of customers, there are millions of pricing combinations. On top of that, most sales teams are given the autonomy to adjust the price for the market, as they interpret it, without true market guidance to navigate these countless pricing combinations. This “pricing tangle” becomes even more difficult to unravel if the process continues to go undefined.
Creating a project team to focus on your pricing strategy is the first step in correcting the "pricing tangle" problem.
When thinking about price improvement, consider the departmental functions and organizational skill sets required to make it successful. Each core function of your company needs to feel involved and represented in the pricing strategy, and the ones driving the project might not necessarily be the same ones who designed it as a strategy.
Let’s start with a few simple questions:
- Who should own pricing?
- Which team members are best equipped to ensure that every dollar is being earned based on the value of the product?
Of course, many functions have a reason for wanting to have control over pricing – sales, marketing, purchasing, operations, finance, you name it. But the question we should be asking is, “Who should set the price?”
When the Sales Team Owns Pricing
Most executive teams indirectly leave pricing decisions to the sales team. After all, they are in front of the customer and should know market price… for every item. Salespeople generally understand their competitors, their prices, and their own products. However, most salespeople do not understand the back end of COGS and “true” costs associated with selling and serving a product. They are wired to close the deals fast and are dealing with customers who have been “trained” to ask for discounts. That’s why it is difficult to give complete autonomy for sales to set the price, despite their market and customer awareness.
When Finance Owns Pricing
In my experience, the finance team can be given responsibility for determining the price a customer will pay, especially within organizations where key employees have been known to wear many hats. Finance is a numbers game; pricing is a numbers game. It all falls in line. Finance may consider additional factors other than cost, but many end up with a cost-plus pricing strategy. This strategy fails to account for different markets, varying product sensitivity, the competitor landscape and more. By solely relying on the finance team, the company either ends up pricing too low and giving away potential profits, or pricing too high and compromising revenue growth.
The Role Marketing Plays in Pricing
The marketing department typically has the knowledge about the go-to-market strategy, competitive landscape and how your buyers make decisions. In fact, price is one of the 4 P’s of Marketing! Many companies allow marketing to own or contribute to setting prices for that reason. While there are reasons why the pricing function would live within the marketing wing of the business, that doesn’t mean they can do it alone. Sales and finance need to also be a part of the pricing committee because of their respective strengths outlined above, likely with other functions as well.
Create an Effective Pricing Project Team
When thinking about price improvement, consider the departmental functions and organizational skill sets required to make it successful. Each core function of your company needs to feel involved and represented in the pricing strategy, and the ones driving the project might not necessarily be the same ones who designed it as a strategy.
Each core function of your company needs to feel involved and represented in the pricing strategy.
Beyond having appropriate representation of key departments, it’s just as important to have the right individuals with the right combination of skill sets to drive the initiative. Consider these roles:
- Strategic Pricing Leader
- Keeps the team on task
- Ensures pricing decisions are aligned with the company’s mission
- Analytical Thinker
- Captures data
- Conducts analysis
- Interprets the story to help the leader make the most informed decisions
- Consider an analytical thinker outside your department that can source “data” input internally
- Administrator(s)
- Maintains the system
- Monitors and reports challenges
- Task-oriented and supportive in completing timely projects
Additionally, it’s important to have a “Pricing Peer Council” that can meet monthly to review opportunities for improvement, monitor trends and attainment of goals, and collaborate to plan how to continue to move forward. This council should include a combination of those on the front line as well as executive sponsors. This team will be equipped to sell the changes they recommend to others within the organization to create better cross-functional alignment and set you up for better things to come.
The Right People in the Right Seats
The expected outcomes of implementing a new pricing strategy are to achieve consistency in the market, simplify pricing management and ultimately increase profitability. To ensure your new pricing strategy is successful, you’ll need the right individuals representing the functions above to drive the initiative. The most critical insight is that one department shouldn’t be solely responsible for pricing.
Put the right people who can manage the project in the right seats and be sure that the strengths and interests of each department are accounted for. With a well-formed team, you’ll continue to support the pricing decisions that need to be made and create an organization built for adaptability and change.
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