In large organizations pricing is everybody’s problem, but everybody looks at the problem in a different way. Salespeople earn a livelihood by offering their customers prices that result in completed sales. Account managers have to keep track of tens of thousands of price rules governing products, brands and customers. Bean counters in the finance department are concerned about the relationship between prices and costs. C-suite executives are motivated by how price contributes to the market share, revenue growth and profitability numbers they have to report to their shareholders every quarter. And somewhere in the organization somebody is clamoring for a “just this once!” exception to some pricing policy in order to achieve an immediately pressing milestone.
These are all valid concerns. The problem is that the decision makers are sitting in different parts of the organization, their objectives are often in conflict with each other (or at the very least require trade-offs and compromises), and they are not armed with sufficient information to understand the broader impact of each price decision on firmwide performance.
Coordinating all these disparate pricing activities is a daunting challenge, but a critically necessary one. Pricing is one of the single most important levers an enterprise operates to influence performance. Various research studies have shown that a 1% increase in the average price of goods and services for a typical Global 1200 company can lift operating profits by more than 8.5%. With stakes like these, decision makers cannot simply kick the can down the road and hope for the best. So how do you solve your organization’s coordination challenge and align pricing activities for optimal performance?
Let’s break the coordination challenge into three component parts: where decision makers are sitting, what data they have access to, and how they are making decisions.
Most likely they are sitting in organizational silos. The term “silo” is used to describe discrete islands of activities within the enterprise: each one self-contained and disconnected from the others. The term carries a negative connotation; yet it is in many ways a natural, probably necessary byproduct of the increased complexity of the business landscape. Over the past twenty years the number of products, customer segments, geographic regions and sales channels enterprises have to deal with has exploded. The activities that businesses have to perform to effectively serve their markets have multiplied in number and are far more specialized – hence the silo.
The challenge is not how to make the silo go away, but how to overcome the silo mentality. Here is where we introduce the “what” factor: in addition to where pricing decision makers are sitting in the organization, we need to understand what data they have access to for making decisions. What we are looking for is a way to ensure that people in different silos have access to the same information – that they have a transparent view into the demand environment from which to make informed, coordinated pricing decisions.
That is easier said than done. Firmwide enterprise resource planning (ERP) systems can be an important first step by having a system of record and system of execution to provide integrated data visibility throughout the organization. That by itself is a tough enough challenge – ERP system integration is a notoriously complicated, expensive, resource-consuming process. But it is still only a partial step to achieving pricing coordination. It addresses the issue of what data pricing decision makers can access and analyze, but not necessarily how they are using the data:
- How can a salesperson in the field obtain precise guidance about price recommendations for a specific customer-product combination?
- How could that same salesperson get additional insight about opportunities for cross-sell to increase share of basket?
- How can a pricing analyst at corporate headquarters create new pricing rules without a cumbersome internal process requiring support from the IT department?
- How can her manager respond in real time to an exception request from the field?
- Finally, how can all these activities happen seamlessly in a timely manner without being at cross-purposes with each other?
Answering the “how” question requires specialized tools that can perform the activities particular to each silo where pricing decisions are being made, while at the same time being able to connect into the system of record to make available the data necessary for common visibility. For companies with thousands of customers and products you need the leverage of advanced science and powerful computational technology to make sense of the environment, better understand the behavior of your customers, and provide intelligent, informed recommendations armed with knowledge about demand signals, price rules, cost-to-serve, and the other critical factors that influence price.
This coordination challenge is not easy, even with the right decision support tools. But remember the stakes – matching the right customer with the right product at the right price can have a profound effect on firmwide performance measures such as market share and profitability. It’s a challenge you can ill afford not to solve.