Frontloading your pricing analyses gives you the power to optimize pricing!

Whatever we might say it’s not really in the human nature to change once we have found a structure and a balance that fits. We tend to defend the present state and also oversee the shortcomings of what we currently have. Therefore, change management is never easy and whenever pricing is involved it’s even more complicated!

During all my 20 something years as a professional, I’ve worked with some form of change management. I started out back in 1992 for a big industrial group called Trelleborg Industries to implement a new time- and production reporting system. At that time, before the PC- and Mac ages, it was quite a big hurdle for the production people to embrace the advantages of a systematic reporting of their production results.
Another difficult change was when I implemented a new ERP-system in the Ericsson Mobile phones business. We were a global team sitting in London and worked together with a well known management consultant firm. We faced a lot of state of the art systems that Ericsson had enhanced during many years to perfectly fit their purposes. Now we introduced one global ERP-system, not tailor-made for different needs and with a very structured setup and data to be managed. Not so easy to sell!

During several years I’ve also had the pleasure to work with Price Management, both on a strategic- and operational level, in large organizations such as Ericsson, Sony Ericsson and currently Assa Abloy Entrance Systems. Price Management is truly a cross organizational effort that stretches from number crunching of huge amount of data to a more emotional part. The key word is change management and in order to improve your business you have to change the day-to-day work and decisions of many people in your organization.

But why would then change management involving pricing offer such a great challenge?
Simply because suddenly you are interfering with the sales and the value of your company and you will also have a big factor of uncertainty not in your control, the customer’s response to a price change! A quite common internal response to a price optimization is that the company will lose a big portion of their business to competitors and that this business is lost forever.

What can then be the secret to reduce the uncertainty and give you the power to optimize your pricing and make sure you get paid for your product- and company value? The answer may not be so sexy, but the devil is always in the details and, in my view, the more you work through your sales analysis the more at ease your organization will feel.

Questions and answers

Working as a Pricing Director for an international group with around 43 000 employees, sales of about SEK 47 Billion and own operation in 70 countries must be a very important, difficult and demanding task. What is your secret?

My guiding principle has always been to keep it simple and also to keep in mind that you can’t solve everything at once. Focus on the projects with the highest impact on profit and strategy and make sure that you are blessed by the top management and include the organization in your tasks. Pricing is a lot about change management and I believe that the secret to success is that people need to create and be part of the change themselves. As Pricing Director you have to spend a lot of time traveling the globe in order to share and discuss the pricing strategy and what it means for the different business areas. Finally; have fun and remember that you are blessed when working with something that has such a big impact on the growth and profit of your company!

In the recent years Assa Abloy has acquired a number of companies across the globe.  How does this impact your already established pricing strategy and organizational alignment?

The fantastic growth through acquisitions at Assa Abloy creates both opportunities and challenges. It’s great belonging to a company that has a clear growth strategy and follows it in a good way. Usually I start with a brief assessment of the new company and their product margin development the last three years. I also spend a great deal of time talking to people with long experience from the acquired business. The key for me is to understand their business strategy and its link to how they have priced their products. What we usually find is that many companies try to buy market shares through lowering of prices and this is not in line with the Assa Abloy pricing strategy. Assa Abloy offers a high value to our customers and this value must be linked to the price. All in all, it’s a great opportunity to be able to learn from each other and share best practices among the different companies in the group. Regarding alignment this is usually no big issue. Once we share the success of our pricing strategy and the link to the overall strategy all people are on-board!

How do you assure that the pricing strategy is being followed up by all channels, functions or newly acquired companies?

There are many ways to make sure that all entities in a group follow the outlined pricing strategy. However, the main pre-requisite is that the pricing strategy is logically linked end embedded in the overall strategy. We have a strategy to reach market leadership in entrance automation with a quite tough growth rate and EBIT level. I have linked the strategy to what it means in regards of pricing our different product offerings and thus made it easier for the different business areas to make sure that they stick to the correct pricing. I’m also very visible in all major decision forums to preach the “pricing gospel” and also get feedback from the organization. Besides this we also have some built in controls and matrixes that enables our sales organization  to take the right pricing decisions. But, remember that you cannot control everything through hard system controls. The best control system is when people believe that the pricing strategy will give us the best place in the market and the best bottom-line.

What are you looking forward to at the upcoming event and what can the delegates take from your presentation?

I’m really looking forward to the Manufacturing Pricing Excellence event in May. For me working 100% with pricing it’s a fantastic chance to meet my peers to discuss and learn from each other. I really like that there are plenty of time for networking since this is where a lot of interesting discussions take place. Regarding my presentation, I will focus on change management and implementation. It will not be a “high flying” presentation. On a quite practical level I will openly share the important features of my most successful projects and my findings on how you can work to implement successful pricing initiatives. I’m still astound on the rapid and massive impact pricing can have on the bottom-line and customer satisfaction!

Here are some points to guide your way:

  1. Most important, make sure that your are formally blessed from the highest level in the company and that you have the mandate to act
  2. Make sure that you become “best friends” with the IT department, super-users of the ERP systems and the business controllers
  3. Work on the transactional level and never use aggregated data as a base for your analysis
  4. Work with sales data stretching over several years to get a more robust base
  5. Always reconcile the detailed sales data with the financia reporting, otherwise your figures will be questioned and you will end up in non-value adding discussions concerning the validity of the numbers
  6. Also most important, keep it simple and don’t get lost in the details, use one or two simple models that will let you conclude the data and to convey a simple message
  7. Convert the actions into their impact on well know KPI:s like sales margin improvements, EBIT improvements or increased cash flow
  8. And finally, be prepared to implement without 100% certainty of the result but, at the same time, be prepared to be positively surprised with the huge impact pricing can have on your bottom line and your business growth!

Marten Hedberg

 

 

 

 

Mårten Hedberg Pricing Director
Assa Abloy
Entrance Systems