Do you have a pricing process? Who is responsible for pricing? Do you know if your pricing is effective? What is your policy around discounting?
How we answer these questions is influenced by our organizational culture. Culture has a significant impact on whether we even have a pricing strategy and the effectiveness of the strategy once we have one. Culture determines:
ownership of pricing decisions
how significant the role of pricing is within the overall organizational strategy
how adaptive pricing is to changes in the market, and
whether the execution of our pricing strategy is effective
Is your pricing adaptive?
Good pricing is never static. It is an iterative process. Markets change and so should pricing. A pricing model that makes strategic sense today may become misaligned very quickly as markets evolve. Static pricing is usually indicative of organizational inertia and complacency, or the lack of a well-defined organizational pricing process that enables price setting, monitoring and optimization.
Pricing is the biggest lever to maximizing revenue, profit or market share, yet so often it is treated as an after-thought. Whether it is organizations that are just starting out, or those that are well-established within the market, not having a well-defined pricing process makes tackling pricing decisions seem like an uphill task.
More often than not, organizations “guesstimate” what they believe to be a reasonable price based on costs and competitor pricing. Then they hope for the best. Odds are, this ad-hoc approach to pricing does not maximize returns and that money is being left on the table. A well- structured pricing process requires:
making pricing decisions a part of core organizational strategy, and
ensuring there is a shared goal for pricing success for all stakeholders within the organization.
Who champions pricing?
Pricing decisions can significantly impact multiple stakeholders within an organization. Any leadership role or any department within the organization that looks to lead pricing change will require buy-in from other stakeholders. The Key Performance Indicators (KPIs) or success metrics for all the stakeholders within the organization should be in alignment with any proactive change in pricing strategy. Pricing cannot be a siloed activity, and requires a larger organizational conversation about immediate and long-term financial goals as well as product and market strategy.
Is there a shared goal for pricing success?
Good pricing needs great execution. Having a pricing strategy is not enough. Even if there is leadership alignment, there must also be buy-in from those who are in charge of the day-to-day implementation and execution of pricing. Communication is key to pricing change enablement. Those in charge of executing on pricing must know why they are required to implement changes. Any change to the status quo needs a compelling reason. Pricing is a collaborative process and there should be a shared goal for pricing success.
Approach to risk
An organization’s approach to risk also plays a significant role in how they approach pricing. How an organization rewards success and penalizes failure can significantly impact how proactive their approach to pricing is and the willingness of stakeholders within the organization to lead change. If the pricing champion bears the risk of failure, yet the organization as a whole stands to win from a pricing success, fewer pricing initiatives will be taken. Good pricing is iterative and stakeholders need the space to learn, optimize and grow.
First steps to a making pricing a part of your core strategy
So if you would like to change your culture around pricing, start with a scenario analysis. Weigh the financial implications of status quo versus price optimization for key business metrics. When pricing can significantly impact the long-term sustainability of your organization, complacency is just not an option.