In most of our newsletters, my colleague Arnab Sinha and I have focused on the nature of the seven games in the Strategic Pricing Hexagon.
Today we focus on the individuals and teams that play the games day in and day out. They are the ones who wield the power behind our definition of pricing strategy: the conscious choices a company makes to influence how much money there is in a market, how that money flows, and to whom.
All Eyes on Pricing
Occasionally we see information – sometimes a survey, sometimes an anecdote – about what function or team should “own” pricing in an organization. That decision has far-reaching consequences for any company, regardless of size or industry, and this is especially true with the uncertainties companies face as 2024 gets underway.
Those uncertainties are intensifying because of one powerful undercurrent we are seeing right now in most pricing and marketing trends: speed. The era of “set it and forget it” pricing strategy has long passed. Companies now face breaking points as potential inflows of data threaten to overwhelm “the tools that got us here” and render them too slow and underinformed to support the high-stakes, rapid-fire pricing decisions that companies need to make. Those decisions could be a contract renegotiation with a struggling key account in the Custom Game, fending off an upstart entrant threatening to undermine a position in the Value Game, or a competitor’s launch of a price war in the Uniform Game.
With so much on the line because of pricing, a company must know which function is looking ahead to the future and, at the same time, watching the company’s back.
Getting the politics of pricing right
Pricing decisions require cross‐functional input and insights, meaning every organizational function has important roles and obligations. Determining which function takes the lead role usually depends on which game you are playing and what tools and capabilities you have at your disposal.
The Hex below shows which function should ideally have the primary responsibility for pricing decisions in the corresponding game. The other functions still provide necessary insights and information and serve as checks and balances on the lead function.
We don’t say, however, that the respective function “owns” pricing. We think instead in terms of leadership, because while this function carries the primary responsibility, it needs to view the other functions as essential collaborators rather than adversaries.
- Value Game: The marketing organization takes the natural leadership role. These teams understand customers – what they want, what they need, and how best to communicate with them – and are therefore the custodians of the value proposition that gives the company its degrees of freedom for pricing.
- Uniform Game: The dedicated pricing team, often called revenue management, optimizes the uniform prices that all customers see. Their thorough monitoring and mastery of price elasticity is the basis for decisions on offer management, optimal prices, and downstream promotions and discounts.
- Cost Game: The finance organization takes a natural leadership role, because efficiency and cost management are paramount. The company needs to hit key price points profitably, eliminate unnecessary costs, and look for ways to consolidate or streamline activities, especially in periods of supply uncertainty and inflation.
- Power Game: Senior leadership plays the lead role in pricing decisions, because the loss of any deal can materially harm a company. Negotiations in these highly concentrated markets tend to take place at the senior‐executive level on both sides, and they require full internal coordination and discipline.
- Custom Game: The sales function takes the lead, because success depends on customizing deals and prices to win against the competition and respond quickly. But at the same time, this game usually has the most intricate system of personal checks and balances of any of the seven games.
- Choice Game: The key to success is maintaining the right product portfolio and architecture across physical products, services, and customer experiences. The role of price leadership falls to the product team, because the interrelationships between features, benefits, and prices is more important than any given price.
- Dynamic Game: The data science team – the counterpart to the pricing team in other games – is the natural fit for pricing leadership. Many companies in the Dynamic Game make a large volume of real-time automated pricing decisions daily. Success is unlikely without robust and reliable algorithms behind these dynamic pricing decisions.
In the coming days and weeks, many publicly traded companies will announce their 2023 results and express their initial outlooks for 2024. If the scrutiny of recent years continues, the eyes of investors will home in on the pricing strategies these companies are pursuing.
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