March 20, 2014
There is an old riddle you have probably heard: “How do you eat an elephant?” ….the answer, if you have not heard it, is “One bite at a time.” The idea is that no matter how big the task is at hand, you can break it down into bite-sized chunks and accomplish it. The same can be said for price and margin management projects.
Since I joined Vendavo in 2007, I have been exposed to a continuum of pricing competence and sophistication in terms of people, process, and systems to support them. Now, moving into a mid-market sales position, I see even more variance from the mean. In fact, most mid-market companies do not have a pricing function, and the few that do are generally so overwhelmed by the sheer volume of deals coming across their desk that they can barely come up for air.
That said, the fact that price is the most powerful profit lever most organizations have is becoming increasingly well know, even at smaller companies. So if you know you are leaving money on the table, where do you start and what should you do? Here are 7 recommendations:
1. Start small and prove value. Be realistic about how long things take to change. There are several things you can do without a huge investment of time or resources to help identify areas of opportunity. Vendavo has some tools like Vendavo Profit Advisor which require no services to implement and can help find opportunities quickly.
2. Come up with a concrete hypothesis and clear goals for the organization after talking with stakeholders in your organization as well as reading up on and discussing best practices for your industry. For example, freight recovery is huge in chemicals but not so much for Semiconductor companies.
3. Test your hypotheses in a concrete way to show value. This can be hard but A/B testing is a proven and effective method for illustrating the impact of a change. Vendavo also has developed a patented causality model that can clearly illustrate the value of price as compared to other factors that impact revenue and margins.
4. Celebrate your wins to gain goodwill with senior management. Even a couple tenths of a percent of increased prices or decreased discounting can go a long way in garnering respect and support in your organization.
5. Minimize change management until you have proven value and executive support. The more people that are impacted by the change, the harder it is. If you are trying to change the way people do their jobs and you don’t have their management teams’ support from the top down, it will be a long, hard road.
6. Devote resources to the effort, at least some official % of their time. Pricing and margin management is not a hobby, it is a discipline. You can’t expect your people to make a meaningful impact unless you give them the direction and time to focus on this and succeed.
7. Put in the process, tools, and people to capitalize on the opportunities you find. After you have shown some value, gotten executive support, and put together a strong business case, you should be able to get the resources needed to put the strategy and tactics into play and make them a permanent part of your organization.