In the best companies pricing is a collaborative activity, and pricing experts need to work closely with their counterparts in finance, product management, marketing, operations and sales. One of the most important collaborations is with sales, especially in B2B companies.
There is an old joke that
"Sales sees pricing as the revenue prevention function."
"Pricing sees sales as the margin destruction function."
This is only funny because it is so often true. To get some insight into how pricing experts should work with sales leaders, we reached out to top sales coach Reg Nordman. Reg leads sales consulting at the consulting firm Rocket Builders and has been the sales leader at a number of software companies. He has been interested in pricing issues for many years and is exceptionally well informed on the tensions and opportunities when sales and pricing people work together.
This interview is a useful counterpoint to our interviews with top pricing recruiter Chris Herbert, pricing thought leader Tim Smith and the founder of pricing strategy and value-based pricing Tom Nagle. This is part of the joint Ibbaka-TeamFit research into the skills needed for pricing expertise. If you are in Chicago for the Professional Pricing Society's spring meeting next week please join us as we present the results of this work.
Ibbaka: What are the critical challenges salespeople face around pricing?
Reg: In many companies the sales function, which is closest to the customer, does not have the authority to manage pricing. As a results, salespeople can only respond to pricing pressure by discounting. Senior management, only hears that "If we don't do something about price we will lose the deal." All the attention is on the top line and not on the profit margin.
This lack of information exchange and focus on the top line means that senior managers are not giving sales the support they need to make effective pricing decisions.
To be effective, sales needs to understand what the pricing strategy is meant to achieve. Has it been set to grow top line revenues, improve margins, drive up gross profit, grow the overall market or category share. It is hard to make good pricing decisions without understanding the goals.
Related to this, sales needs to understand how prices are set. Is there a value-based pricing process in place? Even when there is, sales is often not aware of it. Too often, the only thing sales gets from pricing is a price list and, maybe, some rules on discounting. This does not give sales the information it needs to be a real partner with pricing.
In many companies, sales people lack the information they need to put pricing in context for their customers. There is a general lack of effective sales training in the companies I work with, and this is certainly true of training on pricing. Sales people are often left out of any pricing training the company provides and this is a big mistake.
Bad pricing puts pressure on margins, so there is no money to train sales people on pricing, so margins keep going down. This is reality in too many companies.
Ibbaka: What skills do pricing people need to work effectively with sales?
Reg: The most important thing is to get out into the field and listen to customers. You cannot craft an effective pricing strategy or set prices sitting in your office and manipulating a spreadsheet. You have to hear what customers have to say.
This means that the best pricing people are good at asking questions and then listening. Really listening.
Pricing people talk a lot about value-based pricing, but value-based pricing does not work without value-based selling. Pricing and sales need to work together to understand how to improve the customer's business. Pricing people have to learn how to help sales people communicate value. Few pricing people actually take the time to do this.
This is really a leadership issue. The company's leaders have to spend time with their customers and prospective customers, understand how they can help create value, and then get this way of thinking into the company. Pricing people need to be customer focused. Sales needs to be value focused.
Pricing is not something you set at an annual meeting and then forget. It needs to be dynamic, responsive to changes at customers and moves by the competition.
Sales people are often criticized for always wanting to discount to close the deal. There is a simple reason for this. Salespeople are 'coin-operated,' they follow the money. If you want them to pay more attention to margins then compensate them on margins. Tom Nagle has some great points on this in The Strategy and Tactics of Pricing. Sales people have no incentive to increase margin so they don't.
Ibbaka: What skills are needed to improve the collaboration between sales and pricing?
Reg: This is not really a question of skills. It needs a change in attitude. The first thing that needs to change is to have all parts of the business focussed on creating value for customers. This can't just be top down, but it does need leadership from the very top. The CEO and other leaders need to understand how the company is creating differentiated value for its customers and what the goals are as part of that value is captured in price.
We need to breakdown the barriers between different silos. One of the best ways to do this is to have pricing, marketing, product, and even finance people go along on sales calls and really listen. A lot of the best practices for this are found in account based marketing. Not everyone has the scale to adopt an account based marketing platform, like Engagio, but even small companies can implement the basics and get closer to their best customers.
At the end of the day, the most important attitude sales and pricing people can have is curiosity. You can't force people to want to know more, whether it is about customers, or pricing, or value, but the people who are naturally curious will want to find out more and put their insights to work. Get sales and pricing curious about the companies they sell to and give them a framework that helps them understand what they are learning and put it to action.