Pricing is the language of business. Through pricing, companies tell customers which products have the greatest value or when costs have gone up. Through pricing, companies can “ask” customers to change their behavior. As with all languages, fluency matters in pricing. Organizations fluent in pricing can convince their customers to pay a little more or to buy a little more. Consequently, they routinely earn 1 to 3 percent more on revenues than their competitors do—an advantage that falls straight to their bottom line.
Fluency in the language of pricing—as in any other language—requires discipline. Yet it is not managed as a discipline in most organizations. Many people touch pricing, but no one owns it. Pricing decisions, expertise, and information are fragmented across a company’s regions, business units, and functions.
Some organizations recognize this language barrier in pricing and try to address it. But too often they resort to narrowly focused initiatives—one-off pricing projects that provide only superficial results. To switch metaphors momentarily, that’s like relying on a crash diet for a quick—and short-lived—fix when a lifelong regimen of exercise and discipline is needed to achieve sustainable goals.
One of our clients learned this the hard way. Convinced that the sales force was giving away too much in price negotiations in order to capture volume, this company undertook a pricing project in which it analyzed accounts, identified opportunities to raise prices, and provided a new set of pricing guidelines. The resulting profit boost was quick and significant. Unfortunately, a short while later, the company found itself back in its original position and in need of another pricing remedy. The problem resurfaced because the leaders of the sales force continued to drive a culture that emphasized volume, rather than profitability. Without changing its incentives, processes, and people, the company could not achieve sustainable impact from pricing improvements.
Pricing is multifaceted and requires significant change management to hardwire new approaches. The effort will take most organizations more than 12 to 18 months and require a comprehensive program, rather than a single project. Yet changing pricing strategy can be done in stages that yield significant value along the way. Below is a brief description of the program we use to help our clients’ organizations become fluent in pricing and competitively advantaged in their price realization.