Competitive Pricing: 7 Steps For Pricing In The Age Of Digital Disruption
Competitive pricing: 7 steps to influence pricing and value in the age of digital disruption
If platforms have not disrupted your industry yet, it’s probably only a matter of time before they do.
Platform businesses are disrupting the traditional business landscape and competitive pricing across so many different industry sectors (Agriculture, Communication and Networking, Education, Energy, B2B Industrial, Finance, healthcare, Gaming, Labour & Professional services, Logistics and Delivery, Operating systems, Retail, Transportation and Travel).
displaced by platforms. Industries are being altered in the process. The platform revolution has begun and it is fundamentally changing the role of business and price leadership: How are you responding and is it creating different pricing strategies?
John Deere, Siemens, Philips, General Electric McCormick Foods are some examples of businesses taking positive action to adapt to a platform driven world. Siemens for example are in the process of converting their machines to a platform.
They want networked machines to stream data into a central platform so that they eventually interact with and learn from one another. Siemens platform is dramatically reducing product failure while increasing customer satisfaction.
It is also driving the business closer to a new and better operating model embedded within a value organisation.
In my last article on organisational design: ‘Supporting your teams through a pricing transformation‘, we discussed how a traditional logistics company restructured the business to generate more value for the business and its customers.
In this article, we discuss 7 techniques traditional business can use to keep up with the rate of change and disruption to competitive pricing strategy created by the platform revolution.
The central premise is that all businesses (traditional B2B & B2C + platform based businesses) must build a culture and mindset focused on the exchanges of value occurring within their wider value ecosystem in order to influence value and pricing in an age of digital disruption (such as internet of things).
A focus on value turns businesses inside out
In the past traditional businesses like Staples (corporate supplies and services) and FedEx have scaled by buying upstream suppliers or downstream distributors (otherwise known as vertical integration).
While other traditional businesses like DHL have expanded by pushing more value through their supply chain; and/or like so many FMCG and retailed businesses have done, creating new products, category lines and brands (otherwise known as horizontal integration).
However, growth does not just come from horizontal integration and vertical integration. Forward thinking traditional businesses like IBM, L’Oreal and Tesco, for example, are working out how functional integration can transform their commercial strategy.
Functional integration means building scalable business models with networked data tools, software, products and services and customer feedback loops.
Implementing functional integration involves: analysing which territory to expand to and what data-driven technology configuration they can deploy. It is also dependent on attracting and recruiting the best talent and embracing agile teamworking methodology and the right habits.
Conquer and transform conventional commercial strategy and competitive pricing position
Value based organisational design can be daunting. Designers and builders of value organisations can often find it difficult to identify a logical starting point.
There can be a lot of moving parts and connections to make when re-aligning your teams to value. Below are 7 techniques used by some of the most successful businesses in the world (both traditional B2B and B2C businesses and recent platform businesses) to build value based organisations.
1.Understand customers value drivers :The focus for modern redesign is shifting to the business’ value chain. GE for example, have a huge value ecosystem in which they operate. They continually seek to identify and delineate all the connection points within their value ecosystem so that they are not left wondering about their value positioning.
They test, trial and adapt organisation structures. They seek to understand the information and data gathered from their platform. They piece together data and insights to figure out the best ways to align their people to a value based commercial strategy and work out competitive pricing proposition.
2. Focus on activities that directly deliver value for your customers:Certain activities are crucial to delivering each of the value drivers in your organisation’s ecosystem – pricing is one of them. The pricing, sales and marketing functions and activities must be sponsored by the CEO and company and given the greatest possible resources.
Proctor and Gamble, for example have been closely monitoring which organisational functions generate the most value for the business and then shifting internal resources accordingly. Innovation is moving away from in-house R & D to open innovation.
The business is thinking less in terms of accounting and cash flow management and moving towards price and value management. They are now seeking executives with the ideas and skills to tap new sources of demand and supply.
They are building teams with the capability to understand and influence consumer behaviour using positive network effects and an advanced price and value management capability.
3.Innovate your monetisation model:Functional integration does not happen overnight, even forward thinking platforms like Alibaba, Waster and Uber are wrestling with how they can deliver higher levels of value while monetising the value they generate for users.
How do you grow, scale and monetise value without creating an expectation for freemiums?
Whirlpool are rethinking monetisation (competitive pricing) by charging users for the value that the platform technology creates for those users in 4 ways:
- For consumers: access to value created on the platform
- For producers or third party providers: access to a community or market
- For both consumers and producers: access to tools and services that facilitate interaction
- For both consumers and producers: access to curation mechanisms that enhance the quality of interactions.
4.Use agile methods to generate action quickly:Business models, organisational structures and even platforms create boundaries and restrictions to growth and wealth creation. It is important to test and experiment team structures and evaluate whether you will be able to link functions to specific activities designed to achieve complex pricing outcomes.
5.Re-evaluate leadership & the skills required to build a value driven organisation: Business management skills are changing. An increasing number of leadership activities now involve influencing both consumers and employees. A key leadership skill will be strategically influencing communities, data, assets as well as teams to drive scale and growth for the business and the ecosystem in which it operates.
6.Ensure CEO sponsorship of the talent management process:CEOs who sponsor a value organisation take talent management very seriously. Qantas CEO, Alan Joyce, for example, hires pricing professionals from across the world to build his value based pricing function in Australia. He takes a very proactive approach to building talent pipelines and views talent as one of his top priorities. Talent management is an investment in future growth. Without the right people on board, your plans for growth will not go far.
7.Build a competitive pricing team with the right capabilities: Conventional recruitment practices are costly and often long, drawn out processes. They are often rushed and transactional. Selection decisions have been shown to be subjective and influenced by cognitive biases. They are more likely to lead to bad hires.
Conventional recruitment practices also have a higher chance of delaying or even jeopardising your business plans. They often lack insight into specialist skills, new trends and complex commercial challenges.
You want a rare balance of technical and soft skills to help you drive successful consumer driven commercial strategies to market. A successful value organisation depends on a sophisticated recruitment capability, people analytics and a dedicated training and development (usually this includes a comprehensive 100-day development plan to accelerate productivity and establish the right team habits from day 1).
Building a business ecosystem, rather than building scale and market share through classic M&A is fast becoming the best source of competitive advantage and market dominance. Our customer’s traditional drivers of value have become more unique and the various combinations of value that each customer requires have become more complex.
Re-aligning the business and your people on external sources of value and supply means that managing wealth creation outside the organisation is now a key leadership skill. A critical part of designing a new structure and/or implementing a platform will inevitably challenge traditional team and leadership structures.
Positioning exceptional price leaders within your executive leadership team will prepare you for the demands of change created by platforms and data analytics. Pricing, platforms and business model adaptation are all inextricably linked to the exchanges of value within the business’ wider value ecosystem.
A high functioning pricing organisation should have an in-depth understanding of its customer base and what they value about the business. It make sense that the pricing function are contributing to the development of a platform based business to help you achieve your long term strategic objectives. The questions is: Do you have leaders and teams with the capability to strengthen the cultural norms and skills required to achieve your competitive pricing vision for the future?
If you are a leader looking for non-traditional sources of strategic talent and want to experiment with fast, flexible ways of engaging high calibre competitive pricing and commercial executives for your business, then contact me, Joanna Wells, Director of Taylor Wells advisory firm- experts at building high performing teams and culture:
Telephone: (+61) 2 91994523
via website: Taylor Wells contact form