As a big four’s partner puts it: « pricing projects don’t fail on technology, they fail due to organizational and change management issues”.
We fully agree on that, and we have consequently put these key issues at the heart of our very operational approach based on 4 pillars:
- Pricing culture
- Quality of execution
- Cross-functional engagement
- Relevance of technology
The pricing culture: understanding and accepting price flexibility
The most accurate representation of market prices in a B2B context would be a scatter plot, sometimes quite broad, corresponding to price changes based on various criteria such as customer size, volume ordered, service levels, and so on. These variations are far from negligible; they can vary from as much as three-fold to even five-fold in certain markets.
Yet industrial firms often think they have little flexibility in pricing. Often acting on markets perceived as largely commoditized, their priority is the volume of sales, obtained through their ability to be “at market price”.
The idea that there is very little leeway in price is widespread among the sales force. Customers would adopt a “take it or leave it” when it comes to price. Any pushy position on prices from suppliers would immediately result in loss of volume or customer churn.
Changing mindsets and overcoming deep-rooted beliefs, from field executives to sales managers, sometimes up to the C-suite, is one of the first factors of success or failure of pricing initiatives.
The pricing culture must be addressed from the beginning of any pricing project, with a consistent and specific attention over time (production of proofs and counterexamples, pricing champions among sales force, communication actions, coaching and field support…). Otherwise, results will most probably not live up to expectations, ‘change management’ being claimed as the main reason.
The quality of execution: providing support and tools to the field for leveraging pricing flexibility.
The belief in prices largely determined by external factors and beyond company’s control often leads to leave almost full responsibility on price setting to the sales force, supposedly in best position to define the adequate selling price for each customer (who else knows or cares about, after all?). When this happens, field executives often feel confused and helpless.
Working on quality of execution is about providing cross-functional support and operational tools to sales force in order to improve their daily life and performances.
A thorough analysis of the concrete sales situations will help prioritize the capabilities, processes, tools, set of rules or information resources that best meet their needs:
- Value-added information to improve confidence on price quotes,
- Clear rules on discounting or price targets based upon customer or transaction context,
- Analysis of net prices taking into account discounts, rebates or specific services (cost to serve)
- Operational tools for configuring services/offers or for managing quotes, alerts on existing businesses requiring price adjustment…
- Material and coaching to enrich sales conversations with the buyers and other customer’s executives.
Cross-functional engagement: taking full advantage of pricing flexibility
As already stated, B2B firms tend to closely associate “price” and “sales function”, with the support from marketing in an often lower-profile role than in B2C contexts.
However, price management is a highly cross-functional topic as it strongly relates with value to customer, which is largely created by other functions than sales (purchasing, R & D, production, logistics and supply chain, finance, IT, etc.). Moreover, prices and related sales volumes greatly impact some of these functions (production capacity and stocks, profitability of assets or projects, market share on key segments).
For this reason, companies often find it useful to give a global responsibility for pricing to a team or manager close to the top management. This position enables to:
- Provide support to sales (guidelines, rules) and conduct price analysis / control,
- Facilitate the cross-functional pricing governance (issues related to price orientations or decisions),
- Continuously enhance pricing capabilities over time,
- Promote value to customer and pricing culture throughout the company.
Meeting this organizational challenge (as it shakes the existing consensus and pushes areas of responsibility) is key to improving price management. It is also a powerful sign of the CEO’s commitment, as the typical pricing project owner.
The relevance of technology: “one step at a time”?
Software packages and other digital tools often play a central role in pricing because of their ability to structure or automate business tasks and to provide analytical support.
Most of the functionalities commonly fall into three main areas:
- The backbone of the field sales tasks (list price and discounting, quotes, operational dashboards, etc.), integrated in or around the CRM
- The price guidance & integrity control (price targets determination, analysis / control of the variations in implementation).
- The commercial strategy (cascading profit / volume / price goals) and the measurement of the results.
B2B is a vast world in which companies are very diverse depending on the sector of activity, the position in value chain, the size and footprint, the maturity of their organization, the usage of sales channels, the sophistication and robustness of IT infrastructure, the volume of sales transactions, etc.
“Big Data” is relevant only to a few of them, at least for commercial matters (an excel file often easily contains three years of detailed invoices).
As a result, there are a variety of possible answers on the required or useful technology.
Simple adjustments or upgrades of existing tools (introduction of discounting rules, contextual information on prices recently practiced) will sometimes do the job, while acquisition of CPQ modules (Configure, Price, Quote) from specialized software vendors will prove in other cases to be necessary.
Similarly, the analytical part can be based on a “cube” backed by CRM and ERP or require sophisticated pricing analytics or price optimization software from the same vendors.
In our experience, two rules apply when it comes to pricing technology:
- Business context determines technology, not the reverse. For example, price optimization is based on statistical use of very large volumes of data (price elasticity calculation, predictive pricing, etc.). What seems very attractive in first approach may reveal irrelevant when the number of customer transactions per product reference is relatively low.
- “Eat the elephant one bit at a time”: implementing a pricing software may be complex, companies may choose to break it down into several steps.
Parce que les prix en B2B sont généralement déterminés lors de conversations commerciales entre les vendeurs et les clients, souvent loin des locaux de l’entreprise, il semble aventureux de partir de la technologie et de penser que le reste est une question d’adaptation des hommes et de l’organisation.
Se concentrer sur la capacité d’exécution par la force commerciale d’une “pricing guidance” renforcée (Marketing, cellule pricing) pour construire progressivement les briques qui vont faciliter, structurer et transformer cette exécution est une option plus pragmatique.
Philippe Plunian, Partner at Powering
+ 33 6 80 89 68 42
Philippe Plunian specializes in the formulation and execution of customer-focused business strategies, sales & marketing transformation, sales efficiency and enhancement of pricing capabilities / execution
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