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Pricing Transformation: An (Un)Expected Journey Part I

By Israel Rodrigo
June 21, 2016

Every time I talk with some of our customers and fellow pricing colleagues about their experience on pricing transformation projects, right away a cliché comes to mind: “It’s a journey, a transformational journey.” Much like JRR Tolkien’s The Lord of the Rings trilogy where the characters are called upon to play roles in a story that is much greater and more important than they are aware, pricing transformation projects often have a greater impact on the organization than initially thought.

The Pricing function has slowly evolved from being considered a back-office output to a prominent and determining partner redefining and driving a company’s strategy. More than ever, CxO level executives are inviting pricing practitioners to the front seat in an attempt to be guided in their quest for untapped profit opportunities. Not surprisingly, transformational efforts have often been met with only partial success.

The execution of a pricing project leads practitioners through a murky minefield of obstacles ready to derail a plan. Like the powers of the one ring to rule them all, the promise of profits tempts decision-makers to choose short-term shortcuts instead of long-term approaches, ignoring the key drivers needed for change and successful profitability, such as incentives, compensation, training, and change embracement.

The Comforts of Current State — The Shire

Like Bilbo Baggins, you might have had that inner desire of adventure, pioneered against all odds, and succeeded in building a world class pricing function from scratch. Over time, you might have settled in the comforts of its inner works, power, and little nuances, but you are starting to feel that eventually things will necessarily change.

Or, you might have inherited the legacy of the pricing function and like Frodo, destiny has signed you up for change.

Reality is that most likely, you are a long-time trusted contributor within your organization expected to lead the quest during a time of Big Data and technological innovation and find them the Holy Grail of profit—sustainable and healthy growth.

READ MORE: Keeping Up With Your Competition Part 1

However, the different expectations around systems, processes, vendors, and stakeholders cause you to be naturally more worried, concerned, and skeptical than excited about this challenge ahead of you. Just like Frodo, you fear letting go of the old world of comfort—in this case, artisan spreadsheets—and feel the overbearing weight on your shoulders of the complicated task ahead.

Most customers starting on this quest might fall into the trap of looking at this initiative as a typical task-driven project, bound to a certain timeline, budget, and deliverables with a clearly defined scope and strict deadline.

They tend to underestimate the fact that this will be an ongoing journey that should continuously fuel future discussions around reshaping organizational strategy and priorities and embrace the ever-evolving environment.

Defining the Roadmap to Future State — The Council of Elrond

Complexity and rigidity are taking a toll. Aware of this, your leadership team is outlining their goals to redefine what a successful pricing environment looks like.

Pricing must be supported by sound decision-making with better and more timely information that aligns with a business model enabled by technology. This strategy supports current and future corporate objectives and allows the team to respond more quickly to fluctuating market conditions. Finally, the pricing strategy must be transparent to correspond to benchmarks in a simpler fashion.

To achieve this, you need to bring to a holistic and actionable strategy to the executive table. Before starting, you must:

  • Define the Current and Desired Future Situation: Be detailed and realistic, but simplify as much as possible, knowing that no perfect solution exists to mirror your ideal pricing system. One size does not fit all, but “Cu$tomizing i$ always$ expen$ive.”
  • Be Articulate in Defining Requirements: Try to do as much work upfront work when writing your technical and functional requirements. In my experience, software buyers are often vague when defining functional needs (i.e. ability to create an automatic pricing list) and they should be the first ones cleaning them up to the point that it can be safely confirmed or rejected by a vendor. It forces cleaner thinking by the buyer, avoids the risk of over selling by the vendor, and prevents ambiguity about what is in or out of scope for the software.
  • Create Business Cases to Gain Buy-In: Stay away from replicating current processes, constraints, and mistakes made in the end solution. Think of capabilities and deliverables first and take a chance on rewriting the middle of the story. Sometimes risky/bold solutions can drive and achieve the best results if the framework is right.
  • Lock in Executive Support: Obtain and lock in executive level support by defining clearly roles, responsibilities, and accountabilities.

Resourcing Your Journey for the Long Run — The Fellowship of the Ring

In order to improve the odds for success, finding and keeping the right and most loyal partners along the way will be the MOST critical task throughout this effort.

Adopting best practices and leveraging strengths, skills, and areas of expertise will ensure you are off to a good start, keeping the right direction and pace once the transformation journey has started.

Remember it is not about the tool or the solution itself, but how the stakeholders and aspects of the transformation (from current to future state, project team and deliverables, vendor, change management, policies, etc.) play and stick together.

READ MORE: Leadership in Project Land

A critical player will be your external partnerships with vendors since they have to deliver on Functional, Process, and Relationship Benefits.

Don’t judge your vendor’s capabilities mainly by their skills showcasing how pleasant the User Interface solution looks. Resist the temptation of getting fooled by “a picture is worth a thousand words.” Instead, focus on quantifying the user experience, whether or not the task can be self-learned by a user with no experience. If training is needed, how much will it take and how long does it take a user to execute a certain task once it is learned?

Lastly, make sure there is a culture fit. Disciplined buyers are successful customers that can truly trust, partner with, and be guided through the process while we share and leverage best practices and expertise.

Once you think you are almost packed and ready to go, you will have to provision for the inevitable challenges, setbacks, and conflicting agendas. A most favorite one, to give an example is the challenge we will discuss in Part 2 of our pricing journey series: Business and IT: The Two Towers of Pricing.

  • B2B , journey , lord of the rings , lotr , pricing , pricing transformation

    Israel Rodrigo

    Israel is a Business Consultant at Vendavo with +15 years of extensive international experience in the controlling, customer finance, and pricing transformation for the logistics and pharmaceutical industries. Prior to Vendavo, he worked at Deutsche Post DHL and McKesson in several strategic positions, such as controlling, customer finance, sales development, and leading pricing and profit optimization initiatives. He holds a BS degree in Statistics and Economics from Universidad Carlos III de Madrid (Spain) and lives in Seattle, Washington.