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

by Tim J. Smith

At the field level, decentralized pricing oper...

sales support, sales operations, or pricing operations itself.

Both pricing operations and corporate pricing are part of the larger pricing community though they reported to different functions.

they overlay and support the organization from head to foot.

The idea of a pricing community also highlights that pricing isn’t just a person, nor is it just managed by the pricing organization, but rather it is managed across the broader set of professionals in marketing, sales, finance, and other departments in the organization.

The concept of a pricing community allows for the conceptual development of career paths in pricing, thus enabling firms to have experts developing deeper, specialized knowledge in pricing. As professionals progress from managing tactical pricing decisions to more strategic pricing decisions, their skills and knowledge deepen and broaden. This enables the organization to develop its pricing capability, which, as some have argued, can lead to a competitive advantage in itself.

For a significant portion of firms, pricing is a stand-alone function reporting directly to senior management.

At a majority of firms, pricing reports to another functional group and the group varies. Pricing can report to marketing, finance, sales, operations, and other functional heads. And in other firms, pricing acts as one of many internal consultancies called upon by individual business units to address specific pricing challenges.

When pricing is subsumed within another function, the choice of which function manages pricing is not trivial.

Goals, skill sets, decision requirements, and incentives will all influence the optimal choice.

At some firms, pricing is structured to be an independent function acting as an internal consultancy to other business units.

rather than looking to industry best practices to determine the reporting structure of pricing, executives are urged to consider their own organizations and the goals of the pricing function.

There is one issue, though, where industry has clear best practices with respect to pricing reporting structure. Pricing should have access to the decision makers with profit and loss responsibility.

getting the right people to do the right things at the right times. This is the job of management.

Key performance indicators for pricing organizations can be disaggregated into two classes. The first are those related to the firm’s performance itself. The second are related to mission-specific parameters.

Firm-level

key performance indicators include margin, revenue, ...

The effectiveness of pricing as measured by margin, revenue, and market share cannot be disentangled from

other functions.

Mission-specific

Observed metrics include: the reduction in the number of price variance decisions that must be escalated, the market acceptance of prices on new products, the efficiency and

effectiveness in price execution, the reduction in extraordinary discounts, and many other factors.

These skills will cover a breadth of areas from the highly quantitative to the highly strategic.

Quantitative skills are considered a basic requirement.

Analytics is the bread and butter of their work.

Pricing professionals may also be sought for their research skills.

There are a number of pricing-specific analytical techniques.

Pricing professionals should hone their talent over their career to understand and be prepared to apply these techniques over time.

At the more strategic end

inform competitive strategy, price positioning strategy, and price structure strategy.

inform decisions regarding how to react to a competi...

Pricing professionals tend to be highly curious and analytical.

They often exhibit a high degree of intellectual agility in being able to consider conflicting viewpoints simultaneously in order to bring these viewpoints to a point of alignment.

practice humility with confidence.

The number of pricing professionals required by a firm will depend on the size and strategy of the firm.

Firms that have small product lines tend to have smaller pricing departments. Firms that engage in highly complex businesses tend to need larger pricing departments.

Companies that are just beginning to build a pricing team should initially focus on defining the first year’s problems that the team must address. Is it a price execution, discounting, setting, or strategic challenge that most needs to be addressed?

Companies that have been doing pricing for a while tend to expand the scope of responsibility for the pricing team in both business units and business challenges.

Internal roles

used for the continual management of pricing decisions toward pricing excellence.

Competency areas are denoted by junior analysts, strategy analysts, and pricing leadership.

External roles

used for specific projects requiring deep, specialized knowledge or broader, cros...

are used infrequently and thus cannot be cost-justified to bring in-house

These competency areas are denoted as specialist and external pricing expert.

the junior analysts

strong quantitative analytical skills and general business knowledge.

ability to conduct basic statistical and business case modeling.

analyze pricing data independently to address specific pricing challenges.

the strategy analyst