Wednesday, March 9, 2011

Pricing Best Practices – How Do I Get There?

As more and more businesses are looking at pricing, they are asking themselves, “what can we do to jump start the process?”  Ultimately, it’s understanding how you price.  The process must, at some level, be understood, before you can begin to enhance and evolve.

Pricing process improvements would not be complete without what I'll term a “Day in the Life” of users.  I used to call this “riding in the truck” as a reminder – because I have actually ridden in the sales truck to a job site!  This is the only true way to fully understand the pricing practices of, empathize with, and appreciate the pains of potential users.  If pricing is such a strategic lever that can make a significant difference in profitability, you should be willing to invest the time to understand all the corners of your organization’s pricing practices in order to squeeze out as much ROI as possible.  And what better place to start than with the front line of price communication?

The question is: how do you conduct these Day in the Life sessions?  I can start by stating what not to do… don’t just ask questions!  You must put yourselves in your employees’ shoes… if they are called into a room and must answer a bunch of questions about how they do their job, what do you think they are imagining?  No matter how well you prep them, how you preface your message, or how you triage any malcontent, they will be nervous.  Unfortunately, that feeling will result in them answering the questions they way they “think” you want them to answer.  Anyone can put concepts on paper, which is what their answers will no doubt provide; you are trying to get at the dark and ugly truth about price and profit leakage.  Therefore, take the “interview” to the next level… go ride in the truck.

But don’t just observe in the “white lab coat, clipboard, and one-way mirror” sort of way… observe AND interact.  You should ask “why did you [insert activity here]” until you fully understand – don’t assume anything.  Then go beyond observation and interaction: solicit their feedback for how they would improve their processes.  What else do they need?  What could they do without?  What typically causes them to sit around and wait for three days while competitors steal your business?  Get them to believe they will have an impact on the outcome, the new process that they will be asked to follow… BECAUSE THEY DO!  Once you have this buy-in and belief instilled in your employees (that you want them to do better and are willing to give your time and efforts to help them), the truth comes out.  It’s only then you can work with your cross-functional team to improve your pricing processes in a way beneficial to all… because you know how your organization really prices.


  1. Hi Michael,

    Nice synopsis. Yes, cross-functional education is a key factor. Spending a "day in the life" with sales,finance,etc., and vice versa should be mutually beneficial. Ties in to an article I wrote a few years ago re the daily challenges of pricing.(you can download the article from my LinkedIn profile.)


  2. Peter - I really enjoyed your article. I have an internal post from a few years back that I'm getting ready to submit here that discusses the very confluence of product, sales, and pricing that you describe in detail. Question for you (and really, this is the $1MM question)... why is it that these 3 key roles tend to have such a competitive relationship, when in reality, through working together, they can grow to never-before-dreamed heights? I'd appreciate your input.

  3. Michael,

    Glad you liked the article. Re your question as to the conflict amongst product,sales,and pricing....I think it stems from the 'agenda' each group has or maybe better put, the mission they're each assigned.

    Product management: to develop and effectively manage products through their lifecycle.
    Also, ensuring that their products are 'valued'/marketable hence, in some cases they "apply" pricing pressure on the pricing group to command the best price to market. Sales: Alot of times I think it boils down to the sales orgs compensation my experience most have volume based incentive program thus, the pricing "tug-of-war", frequently to have lower prices approved. Pricing: I like to define pricing's mission as to help capture sales opportunities, as well as maximize profit. Regardless of what cross-functional group pricing is interacting with, a main objective is to maximize you know.

    I think the bottom line is: different missions, and not getting out of the 'silo' mode contributes to alot of 'friction' amongst these functional groups. To alleviate this, I think
    as I mentioned in my article, it's improving education,communication, and relationship building. This coupled with C-level management's support and, trying to change the 'old' mindsets(which we all know is challenging) of a company's culture will only help to build better cross-functional relationships. If that can be done amongst these three groups then I think they can
    "... grow to never-before-dreamed heights".

  4. You hit the nail on the head... what I call the "triumvirate" of pricing (call it whatever you want) insists that from product management, through pricing, all the way to sales must understand the overall business strategies being applied and act accordingly. If sales is volume/revenue based, but the company is striving for margin maximization, many times the tactics put forward by product or pricing are ignored when it comes to price communication at the sales level, and I completely understand this. It's the old "WIIFY" (what's in it for you) that drives everyone. The most successful organizations I have worked with have been willing to change their compensation practices to better align with business goals (and many times, not without resistance). But this is imperative to achieving maximum returns.