Pricing Done Right: The Pricing Framework Proven Successful by the World's Most Profitable Companies (Bloomberg Financial)

by Tim J. Smith

For price variance policy, pricing analysis addresses:

for price execution level, pricing analysis addresses:

Due to the advances in software, both at the desktop and enterprise level, the costs and time required to execute many of these analytical techniques has dropped dramatically.

Yet,

pricing analysis is not a software problem alone.

Unique skills are required to collect the needed raw data, convert it into facts, and then apply the proper analytical technique to develop useful and unbiased information for decision-making.

pricing analysis requires firms to create a new organizational capability.

Pricing analysis functions are generally welcomed across the organization.

To conduct future analysis, SaaS Co. created a pricing function. This pricing function was charged not only with managing transactional- level pricing analytics, but also informing pricing decisions for new products and otherwise providing pricing insight for senior executives.

A key role of management is getting the right people doing the right things at the right time, but who are the people doing pricing?

Who should be engaged in informing, developing, and implementing pricing decisions? How should executives structure the decision-making team? And what decisions should senior executives retain control over while pushing other decisions down into the organization?

When a firm adopts value-based pricing, it is also adopting a different decision-ma...

pricing decision-making itself becomes a cross-functional activity.

The full understanding and knowledge of customers’ perceptions and the firm’s costs is dispersed throughout different functional areas of a firm. As such, making good value-based pricing decisions requires gathering these inputs from these functional areas across the organization.

value-based pricing requires a team decision, and that team should be a cross-functional team.

The four key functional areas that have been identified through both academic research and industry best practices for driving pricing decisions are marketing, sales, finance, and pricing

Firms in many industry categories have adopted two organizational structures to facilitate cross-functional decision-making in pricing. These are

pricing councils

and

pricing work...

Pricing c...

regu...

senior executives from marketing, sales, fi...

identify areas for im...

make recommen...

Pricing workgroups

ad hoc teams

me...

research and clarify pricing challenges, identify potential approaches to addressing those pricing challenges, and make recommendations to senior executives regarding pricing decisions.

The relationship between the two is one of project management versus project execution as well as one of decision-making versus fact gathering.

Marketing

brings insights on current market needs and where those needs are going (Where are we going?).

S...

brings insights on what it takes to capture a customer today (Will the...

Fi...

brings insight on costs, profits, and business investment portfolios ...

pr...

brings its ability to analyze the decisions and drive an understanding to help get all other functions ...

many—but not all—firms have found that shifting salespeople’s performance-based

pay from a volume or revenue basis toward a profit basis drove salespeople to achieve higher transactional prices.

Research has demonstrated that the principal agent problem can be mitigated by engaging salespeople in the pricing decision-making process itself,

To combine the unique insights of marketing, sales, and finance into a cohesive whole and create aligned decisions, leading firms have developed specialized pricing functions.

Pricing professionals bring a unique skill set to pricing decisions.

Their analytical approach

will borrow concepts from economics, finance, mar...

behavior, sales, ...

Their tec...

will borrow from computational science, statistics, data mining, and ...

There are three areas of pricing analysis that are ripe for turning into routines: (1) pricing across the offering innovation cycle, (2) price variance policy improvement process, and (3) in-market price improvement process.

These are areas where the organization’s skills can be improved through repetition and continuous improvement.