With the Professional Pricing Society (PPS) Fall Workshop right around the corner, we’re looking back some of the top takeaways from the spring conference where pricing’s foremost thought-leaders came together to uncover the expanding scope of pricing today.
During the event, Syncron had the opportunity to hear from Sharad Chadha, General Pricing Manager of Global Services at GE Healthcare as he shared price management knowledge from his experience at major organizations like Electrolux, ABB, and GE, alike. Chada dove head first into what it takes to build the pricing muscle within a large, global company.
It’s no secret: Creating a robust and sustainable pricing function from scratch in a complex global corporation is challenging. But, how can we overcome those challenges in a rapidly changing world? A cross-functional team for pricing and executive buy-in is crucial, not only for pricing success, but for the change management journey.
And, regardless of the size of your organization, it’s possible to overcome internal challenges, assess your organizations pricing capabilities, and ramp up a hyper-growth price management system that achieves rapid (and positive) results.
Recognizing Roles, Responsibilities, and Rights
To begin any major organizational change, it’s important to recognize each role, responsibility, and decision right along the core pricing processes. To assess your company’s needs in pricing, you need to be able to answer:
- How many things do you need to price?
- How complex are your products?
- How much do you sell?
Answering these questions will help you determine major aspects that define how you’ll move forward with your new pricing infrastructure. To determine organizational alignment and decision rights – the blueprint for a pricing team with expanded responsibility and accountability – you must be able to assess who is:
- Accountable for approval.
- Responsible for work.
- Contributing input.
- Influential over the process outcome.
To take your pricing processes to the next level you must first determine where pricing should sit, and distribute roles, responsibilities, and rights as much as possible. Plot each type of person against the different pricing decisions that have to be made and the different divisions to create a dedicated cross-functional pricing team that partners effectively with the rest of the organization.
Defining the Essence of Value Creation
There are many critical elements of a well-functioning pricing infrastructure necessary to effectively set, get and net prices. But before you prepare those strategies, as yourself: Why do customers buy from you rather than your competition?
In a successful, modern organization, the answer is value. Pricing is not as much about software or solutions, as it is about credibility, trust, people, and leadership. “What we have is not in the research and development lab,” says Charad. “At the end of day, customers pay for value.”
But what exactly is value? Is it based on benefits or usefulness? Is it the cost of the product or the risk you took? Is it the risk you’re helping to the customer avoid? In short, the essence of value creation can be described in a simple algorithm: (What + How) / (Cost + Risk). Value can be created or increased by:
- Increasing the benefit of the product
- Improving the How of the experience
- Lowering the risk
- Lowering the price
Take this for example: you can buy a 24 pack of soda at the grocery for $4.99 – but on a hot day at the beach, you’d probably be willing to pay $3 for just one can. Nothing changed about the cost of that soda, but the how and the benefit increased, so, in the end, the value of that soda has increased. Now, take risk reduction for thought: Hyundai tells consumers that if they lose their job, they can return their car. By reducing the risk to buy, more people were willing to take the leap and buy the car.
How to Build the Pricing Muscle of Your Company
When you build the pricing muscle of our company, you have to take all four factors – what, how, cost, and risk – into account. It’s when customers feel that you’re manipulating any of these factors that they begin to feel like you are gouging them or unfairly pricing against them.
So, how do you build a pricing muscle? Start by building a pricing framework and strategy to move forward with processes like annual price reviews, reactions to major price moves, and building best practices, opportunities across regions.
This starts with price setting, where you set price lists, provide price guardrails, and approve price plans. Next comes price getting: discovering the discount level that’s not being consistently applied on customer significance today. This involves managing those set guardrails, deciding promo levels, and deciding compensation terms and incentives. And finally comes price netting, where you ultimately analyze price erosion, manage price leakage, and develop market intelligence and research on competitor pricing.
Price management, just like any other organizational development, is a delicate balance of art and science. Here are Charad’s ten keys to successful pricing programs in evolving organizations:
1. Get executive/CEO buy-in.
2. Create a sense of urgency and organizational alignment.
3. Pair change management with pricing immersion.
4. Practice execution and discipline.
5. Employ good analysis, transparency, and trust.
6. Compare competitive intelligence.
7. Make sales people heroes – the enemy is outside.
8. Celebrate wins.
9. Get out of your comfort zone and don’t be afraid to test things.
10. Aim big and be ready for a positive surprise.
This spring we learned from some of the top pricing experts in the world, and this fall, we’re looking forward to learning more about pressing pricing topics like core pricing skills, pricing new products, corporate strategy, procurement tactics, partnering with sales, and so much more. Keep an eye out as we continue to focus on pricing in the manufacturing and service industry, and how after-sales optimization can be the hidden profit lever in your organization.