When you think of someone in pricing, you probably imagine someone putting a price on a product or service. Although this is true, pricing is so much more than this. Think about three major functions:
1. Pricing execution
2. Pricing strategy
3. Value creation
Execution is the set of business processes from setting the price to receiving the payment. These business processes include: setting the initial price, getting that price on the price list, sharing that price with the salesforce, quoting that price, accepting an order for that price, not unknowingly giving non-price discounts, invoicing that price, and finally getting paid that price after accounting for rebates or other discounts.
Each of these seem like a relatively simple business process, but experience shows that it is very difficult to get paid the price initially set. The difference between the set price and the realized price is often called price leakage. A good pricing team not only helps set and execute pricing, but also tracks down and minimizes price leaks.
Pricing execution done well generates a huge amount of data. This “big data” is extremely valuable in price maintenance and developing new pricing strategies. Pricing is often heavily involved as a lead business user of the data.
Strategy is defining the procedures on how to set pricing, and it’s what most of these blogs are about. This is where you use Value Based Pricing, price segmentation, portfolio pricing and other pricing strategies and tactics. Your pricing team should be exploring new pricing strategies and implementing them when they prove profitable.
Value Creation is the least obvious function for pricing. Value creation happens while the product or service is being developed. When marketers or the product development team clearly understand pricing concepts, they rely heavily on that knowledge while defining new products or services. This helps them create high value products that customers are willing to pay for.
Pricing’s role in value creation is to educate the entire company on value based pricing, especially about how customers use price when making purchase decisions. Pricing may even be able to implement formal processes where product development people perform pricing exercises before committing too many company resources.
How much of this is your company doing? Remember, pricing has a powerful impact on profitability. Ignoring it doesn’t help.
Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author
Photo by UGardener
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