Pricing

Don’t Get Trapped in a Penrose Stairs Part 2: How to Identify and Overcome Misalignment in Your Pricing Journey

By Matthias Mueller
June 12, 2014

Your pricing organization/teams have gained more and more experience, and pricing has received lots of attention from the entire organizations as you showed good results from systemized processes to diagnose margin leakages.

To take pricing to the next level, you need to ensure that all functions are perfectly aligned, understood and comfortable with the defined pricing strategies per customer-/product- class and/or segment.

Before you get ahead of yourself, pause for a second, listen carefully not only to your pricing team, but more importantly, to all the stakeholders involved along the pricing process – i.e. Pricing, Sales, Marketing, and Product Management. As you listen, look out for signs of misalignment:

  • Benchmarking of customer and/or product performance gets more and more complicated as Sales does not focus on consistent population of Waterfall elements (e.g. freight surcharges not shown separately but included in customer price)
  • Sales is hesitant to implement the agreed list of corrective actions and are questioning data analysis/identified root-causes
  • Margin improvements get stuck, and you spend a tremendous amount of time explaining and re-aligning already agreed-on pricing strategies
  • Data quality becomes a major concern, again

This misalignment can result in a number of dramatic consequences:

  1. Strategies not being consistently implemented across countries and regions, leading to an inability to execute well on agreed pricing strategies
  2. Pricing strategies not showing targeted results, leading to continuous pushbacks from different stakeholders
  3. The value of the pricing initiative being questioned by the sponsor
  4. Your organization reverting back to “square one” – following old, bad pricing habits

Penrose-Stairs-3-300x228

These are classic examples of the change management challenges faced by large organizations. So, what are the pro-active actions that you, as a pricing leader, can put in place to ensure your organization stays on track to a successful pricing journey?

1. Communicate often

  • Regularly share your organization’s Pricing Excellence Vision and the next steps that need to be taken towards your goal
  • Demonstrate captured value to keep momentum going
  • Share findings & best practices across the organization, use them to learn and get better

2. Continuously enhance your team’s pricing skills & competences

  • (Re-)Assess existing pricing competencies and levels
  • Define role-specific  pricing profiles (skill level + competencies)
  • Provide a training curriculum to show the path to get to the next level

3. Provide valuable insights

  • Create personalized pricing performance reports
  • Actively involve and challenge key stakeholders from Sales, Marketing, and Product Management: “What else do you need?”
  • Track adherence to pricing guardrails & strategies

4. Embed pricing metrics into regular business performance reviews

  • Integrate pricing metrics into a balanced scorecard
  • Create an action plan and monitor progress of corrective actions that impact key pricing metrics
  • Start a discussion about a margin-based component for sales compensation with a “friendly” sales director – but, don’t be too pushy at this stage

5. Continuously work to increase visibility on all margin leakage areas

  • Increase the granularity level of analysis and/or pricing strategy/guidance where appropriate
  • Start a discussion about additional profit optimization analysis and differentiated pricing strategies, e.g. by market segment, product end-use, customer class or segment

Screen Shot 2015-01-06 at 8.10.41 AM

When I referred to the value that our customers are identifying and capturing on an annual basis across different industries and shared some of the benchmarks (which go up to 4% RoS and beyond), one customer raised the question about the key enablers to get to that level, to become a top performer.

Based on my experience and engagement in various customer projects, I strongly believe that to become a top performer, you need to establish strategic pricing as the core of your business. This means that the entire organization – from CEO down to managers and employees – is driven by key price performance metrics. All key stakeholders and every member of the company need to be aligned and committed to it. The steps to get there, you’ll find above!

And, for more information, watch one of our webinars:

Verborgene Verlusttreiber aufdecken. Profit steigern. Vollautomatisiert. (in German)

Boost Profits in Minutes (in English)

  • B2B Pricing , overcome misalignment , penrose stairs , pricing , pricing best practices , Pricing Strategy

    Matthias Mueller

    Matthias is a pricing practitioner with over 16 years of experience in practical and strategic pricing in B2B. During the last three years at Vendavo, he has helped customers across industries adapt and implement best practice pricing strategies, quickly ramp-up/enhance their analytical skills and improve pricing effectiveness and margin performance.