In a competitive and evolving business landscape, pricing strategy plays a crucial role in determining a company’s profitability and market positioning. However, the success of any pricing strategy hinges on effective implementation and governance.
To be clear, pricing implementation involves the practical application of a pricing strategy, including setting prices, communicating them to customers, and adjusting them as needed.
Pricing governance, on the other hand, refers to the structures and processes that guide pricing decisions, ensuring they align with the company’s overall strategy and goals.
Here’s our recommended roadmap based on our experience across a number of clients and industries:
- Standardize pricing processes: Establish standardized pricing processes to ensure that all pricing decisions align with the company’s business goals and strategy.
- Establish pricing policies and guidelines: Develop clear policies and guidelines for pricing decisions. These should include factors to consider when setting or changing prices, such as costs, market conditions, and customer preferences and willingness to pay. The policies should also outline the process for instituting and approving price changes and discounts. For example, if a direct competitor changes their pricing, or if strategic customers decide to switch to other solutions.
- Define roles and responsibilities: Clearly define who is responsible for making pricing decisions. This could be a dedicated pricing team, a cross-functional team, or a combination of both. The team should include representatives from key areas such as sales, marketing, finance, and product management.
- Align sales incentives with pricing strategy: A pricing strategy is only as good as the incentives provided to the sales team to execute it. Ensure your sales team is compensated and incentivized to achieve your strategic pricing goals. For example, if your strategic goal is to increase profits, incentivizing sales on acquiring new logos will invariably not work.
- Monitor and review: Regularly monitor and review pricing performance against your business goals (e.g., revenue maximization, market penetration, etc.). Track key metrics such as revenue, total contract value, average selling price, price inconsistency (when similar customers get different prices), customer price elasticities, non-standard discounting, cross- and upsell, customer acquisition and churn. Use pricing performance to adjusting pricing actions as needed.
- Implement pricing tools: To make pricing management more efficient and easy to use, employ pricing analytics solutions to help manage and implement pricing decisions. Use real-time measures of pricing performance metrics to identify poor pricing execution and to enable quicker pricing response to market changes.
- Manage risk: A well-governed pricing strategy should include risk management processes. This can involve regular audits of pricing decisions and processes (e.g., win-loss analyses and deal deep dives and deconstruction) to identify and mitigate potential risks.
- Share best practices: Organize pricing discussion forums, sessions, or workshops regularly for pricing stakeholders (defined by anyone in the organization who touches prices or is touched by pricing) to share insights and recommendations from recent pricing decisions and actions.
- Create a pricing committee: Establish a pricing committee to oversee pricing decisions. The committee should meet regularly to review pricing performance, approve price changes, and ensure that pricing decisions align with the company’s strategy and goals.
- Invest in ongoing training and communication: Ensure all relevant staff are trained on pricing policies and guidelines and understand the importance of pricing decisions. Regularly communicate updates on pricing performance and changes to pricing policies or guidelines.
Effective pricing implementation and governance are pivotal to enhancing a company’s growth and competitive standing. Businesses can adapt more dynamically to market changes, better meet customer expectations, and achieve sustained financial success, not merely by setting the right pricing strategy, but also by embedding robust pricing management to ensure their pricing strategy sees the light of day.