Pricing is a crucial driver of revenue. A small improvement in pricing can have a dramatic impact on profit, with no additional investment needed. The ability to change prices instantly makes for a very flexible tool that allows a business to pursue multiple strategies: from margin maximisation to signalling or market share targeting. However it is precisely this flexibility that makes optimising pricing in a large organisation difficult. Sales staff find complex pricing on a large product range difficult to understand, and pricing decisions are not always aligned to corporate goals. Managers often do not have clarity on front-line pricing behaviour and its impact on profits.
PIP consultants have undertaken many pricing engagements across a varied customer base: from large companies, where annual pricing agreements are often in place, to smaller organisations, where retail price lists exist with predetermined volume discounts.
For our engagements, we typically start with a structured diagnostic. In sales and marketing, this diagnostic includes:
- Reviewing industry structure and conduct
- Reviewing existing segmentation
- Analysing value pricing
- Running a Driver Tree analysis to identify sources of pricing leakage
- Conducting a high-level, cost-to-serve analysis carried out by channel
- Conducting reporting, Key Performance Indicators (KPI) and accountability analyses
Capturing the pricing opportunities
Each diagnostic identifies different pricing opportunities to be implemented in different environments. Here we give a flavour of some of the factors that PIP frequently addresses to help clients deliver substantial and sustainable value.
- Making easy-to-understand tools available to support sales managers.PIP has experience in developing straightforward yet sophisticated tools, such as online pricing and contract tools, for sales managers in the field. This enables the best pricing decisions to be made quickly and accurately.
- Simplifying segmentation. In our experience, many clients have very accurate, but highly complex customer segmentations. Sales staff often cannot tailor their approach to every segment, let alone remember segment-specific messaging, pricing guidelines and rationale. By rationalising segmentation to two to four segments, sales staff can, with ease, remember each sales category – along with its corresponding messaging, pricing guidelines and underlying reasoning. This results in better pricing and higher profitability.
- Giving top-level management a clear view of front-line pricing compliance. Price is a powerful catalyst for profitability, and it is very easy for front-line staff to drive profitability down one small discount at a time. Reviewing front-line pricing behaviours and watching for problems in the current pricing plan are critical. To avoid top management drowning in details, we often assist our clients in the creation of weekly reports and performance discussions that start at the level of the sales force and aggregate as they ascend up through the organisation to Executive Committee level.
Accelerating and sustaining results
The sustainable implementation of pricing opportunities requires new competencies in the organisation. Coaching and training, as well as a thorough reality check through piloting, enable your organisation to develop and assure that these competencies are deeply embedded in day-to-day operations.
- Coaching and training. Training, along with the wiring, needs to encompass all levels of the sales and marketing organisation. Our training programmes include:
- A Business Unit programme, which ensures that members of the leadership team not only understand the new pricing and reporting tools but also understand how to review and coach their people so the tools are applied correctly – and pricing rules and logic are adhered to
- An e-learning sales force programme that not only enables the rapid deployment of training across multiple small branches, but also ensures low-cost, easy-to-administer training is made available to new hires
- Piloting improvements. An important part of driving improvements is to run multi-branch pilots. These allow you to tweak prices either up or down in a confined environment to better understand resistance levels. It also allows for the identification of errors – such as bugs and functionality issues in pricing tools; testing and the modification of reporting and the improvement of training materials based on where people require further clarification.
An example of our pricing work
PIP increased the revenue of an equipment hire company by 9% by using retail and tender customer pricing tools, and through weekly Sales Force Effectiveness performance discussions between the managers and the sales staff. This was achieved through three sequential worksteams:
- A structured Sales Force Effectiveness and pricing diagnostic
- The creation and implementation of retail and tendering customer pricing tools
- By increasing management awareness of, and ability to improve, Sales Force Effectiveness – either overall or specific to ‘pricing compliance’