Cost based pricing strategy:  why communication is a prerequisite for pricing leaders

 

 

At Taylor Wells we are often involved in implementation of pricing teams and functions in businesses where they have not been previously or where they have not been seen as core to the commercial proposition of the business. This can be when the dreaded adherence to a faulty cost based pricing strategy or cost plus can be very strongly defended.

In this short blog we do not intend to cover any of the well known weaknesses of a cost based pricing strategy but instead touch on some of the pitfalls that can happen when a new pricing lead or revenue manager seeks buy in for a pricing optimisation programme or movement towards value based pricing. At Taylor Wells, we are ardent believers that a pricing leader is also a business leader, i.e. not a segmented function such as purely finance, risk or legal. Do really transform pricing in a large corporate – you need to win buy in from sales, marketing, finance, the C-suite, operations – in fact all departments. Do do this is certainly not easy, but sometimes we feel the task at hand is underappreciated.

 

How to broach the elephant in the room – cost based pricing strategy may not be the best way forward!

I was chatting to a friend the other day -from a company I used to work at. I was asking about the commercial strategy and who is setting pricing strategy now. He said “how can they set prices when they do not even know the costs“. At that point I thought – I do not have enough time to go down the road of explaining value based pricing and also, I do not want to criticise my friend who seems so committed to cost based pricing strategy.

I think we have all been there, when we realise that the person you are talking to is so committed to the apparent accounting and scientific rigour of cost plus pricing, that do discuss anything different is seen as a form of heresy or lazy / shady marketing waffle.

It can be an exhausting experience – winning buy-in from multiple functions for a move to value based pricing, but it is vital to build any pricing transformation. In fact, we view it as laying a solid foundation for the transformation, otherwise you are sure to find the optimisation program will flounder as if on quick-sand.

 

Providing useful and understandable explanation and evidence

 

Taylor Wells is committed to a education based form of marketing pricing and pricing recruitment. We strongly believe in the ability of pricing to deliver sustainable profit and revenue boosts to even the most established business. When you are a pricing professional, the benefit of value based pricing are almost self evident – but we sometimes need to remember how we discovered the profession in the first place.

There is usually a light-bulb moment when value based pricing becomes clear to us. The challenge in spreading the word to others is helping them have their own light-bulb moment – and often the trick can be making them believe they thought of it themselves!