The Moment in Time – Pricing Maturity Level
As a part of my research for the upcoming conference , I wanted to understand more about the current Pricing Maturity Level in the Industry. Speaking with several experts in this area, I was recommended to start with an article written in 2005 by Paul S. Hunt called “Seizing the Fourth P”. This article describes the five levels of pricing process performance that managers can use to help establish a vision and a timeline for improvement (world class pricing-process maturity). As said in the article, improving processed is a multi-tasked initiative that requires merging several processes and creating tools that will improve decision making. The key elements of a good process include: Standardization, Performance Measurement, Pricing process tools and Appropriate rewards.
What was also interesting in this article is that at that time most of the organizations were on level two and three on the world class pricing-process maturity scale. So where are we now? A very recent paper by Pol Vanaerde, “Crossing the Pricing Chasm “ also focuses on Pricing Maturity. In this paper, it is mentioned that under optimal conditions it should take up to 3 to 4 years to bring an organization from level one to level three and after year four the organization should be looking at full profit optimization.
If we take in consideration that the first article was published almost 8 years ago and the given time frame for organizational pricing maturity development in optimal conditions in the second paper, it is obvious that we should be right now on level four or five. Great!? Unfortunately, by some recent observations, 40% of the manufacturing organizations find themselves in level two (Transactional) and that less than 20% of the organizations have established sustainable Value-based pricing. So why we haven’t moved so far since 2005? I am interested to hear your thoughts.
Goran Cvetanovski, Editorial Director- Manufacturing Pricing Excellence 2015
In 2002, Gartner released a document called “ The Business Intelligence Competency Center: An Essential Business Strategy”, focusing purely on Business Intelligence. BICC was the answer to many of the challenges that organizations were facing especially when it came to Change Management. The main problem was that the decided corporate strategy was not fully understood and therefore purely executed by the main stakeholders. BICC is an independent department which is cross- functionally working in conjunction with carefully selected Champions in different departments. Identifying Champions and enrolling them into the project help the organizations to understand how they can communicate the value of the BI project to every stakeholder, make sure that the strategy is executed correctly and finally crossover to the next maturity level.
Change Management in Pricing is not so different. In order for a pricing strategy or a Pricing Project to be executed, organizations must not only focus on creating a cross-functional teams but also focus on transparency, communication, training and coaching , setting up clear guidelines, measuring the effectiveness and constantly developing further.
The sales force plays very important role. The Sales People need and have to understand the goal of the strategy and the importance to follow up on it. Clear guidelines will help them with execution and an incentive program will contribute to increase commitment and bigger success rate.
Frontloading your pricing analyses gives you the guts to optimize pricing!
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!
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! Why you might ask? 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. Here are some bullets to guide your way:
Mårten Hedberg, Pricing Director, Assa Abloy Entrance Systems