Pricing Function

Building the Pricing Function

Based on our experience with enterprise high-technology and business-to-business companies, we suggest three tasks for the lead manager responsible for pricing — that manager could be the Chief Financial Officer, the Marketing Vice President, a pricing manager or the Chief Pricing Officer:

The first task is to objectively and realistically measure and monitor the value your Company delivers to end users, directly and through channel partners, across all of your major offerings.

The second is to appropriately align pricing — along with related practices, processes, information, and plans — so that product and service pricing reinforce the value your Company plans to deliver, and to do this in a fashion that is consistent with your company objectives.

The third is to accomplish the above two tasks in ways that your managers can rally around.

Setting the Company-wide Pricing Agenda

Based on successful projects in business-to-business high-technology markets, these are some of the questions to consider in accomplishing the above three tasks:

For each market, do you have an effective list of attributes that you can use to efficiently determine the value you deliver across a range of products? This list is achievable, and important, in addressing all three of the above tasks and in setting the Company’s pricing agenda.

Do you have current, objective research that identifies which top attributes drive the selection of your Company as leading provider for your enterprise accounts?

What are the top barriers to accounts to select your Company as their leading provider?

Creating a Pricing Action Plan

Do your pricing action plans include the business objectives, responsibilities, anticipated competitive response and results for each major pricing action?

Does your pricing competitive line-up cover all of your top products and services offerings?

Does your delegation of pricing authority to the field (including approval of allowances and price concessions) reinforce, or undermine, the value that you are delivering?

Does the value that you deliver vary significantly among EMEA, Asia Pacific, Australia, Japan and the United States? If so, it makes sense to consider regional price bands to improve profit volume and, at the same time, reduce global customer price shopping.

Do you have a segmentation that is well-accepted and useful in quantifying the value your Company delivers? Is the segmentation business and statistically robust? Price-volume response charts, that show the likely change in your sales due to changes in prices, can be more meaningful and actionable by segment, instead of averaged across segments that exhibit very different behaviors.

Here’s one test of an effective segmentation for you to consider. Does the segmentation:

reveal significant value differences between segments for the attributes that best reflect your core competencies?

allow you to clearly identify accounts within each segment so that you can take appropriate marketing and sales action?

show predictable differences across segments in customer behavior (for example, in vendor selection, product acquisition, deployment and use)?

Is the value that you are delivering sustainable? Sustainability can be measured, monitored and improved. One factor that contributes to sustainability is the position of your offerings in the product life cycle.

Do you have a clear picture of accounts' propensity to switch vendors and the ability to identify vulnerable competitors and the likely go-to vendors?

If global end user companies get measurably more value from your global programs than from those of your competitors, you may have potential for incremental profit.

Are there significant differences in the value delivered by different types of channels? Based on differences in value delivered through channels, it made sense for a leading hardware-software-services company to shift from a cost-based discount structure to a value-oriented, compensation-based channels discount structure.

Do your managers use the Company’s pricing graphs and charts effectively and routinely?

To learn more, contact us at globewaves@globewaves.com