Price Advice: 5 Questions To Ask Before Designing A New Pricing Team?
Successful pricing organisations, like GE, John Deere, Caterpillar, Shell, 3M know something most businesses don’t about price advice.
They know that if the goal is to drive growth and more margin dollars in highly competitive and disrupted markets, they need to operate within flexible organisational structures and seek price advice on how to align their price and revenue models and teams to a changing business model and a new way of operating.
From an outside-in perspective, it is often hard to figure out how and why business look and act the way they do. And yet, from an inside-out perspective, we become used to things over time and enjoy the relief we get from our familiar surroundings.
When we don’t have any dedicated price advice, we question ourselves and the way we do things less and less: “Its just how we do things around here.” This structure worked in the past.” “There’s nothing wrong with our pricing.”
When everything seems to be going well (i.e., predictably) we believe the need for external price advice is low: Our organisations continue to operate, business gets done, we make sales, people continue to buy, things roll on…
But all of a sudden, a new trend, shift in the market or threat strikes the business. Then, everyone realises it’s not possible to succeed with their current structures. A handful may realise they need price advise to stop the pain getting worse. Many continue to suffer in silence and operate in dysfunctional structures.
I know that it’s not easy to take price advice or integrate a new pricing team within an existing structure: It can be daunting for managers to weigh up and evaluate price advice, multiple variables and trade-offs. It can be difficult to see possibilities amidst all the past precedents that exists – i.e., interpersonal relationships, expectations, roles, career trajectories, and functions.
Price advice can seem costly. Change can be disruptive. However, the pain of inertia increases the longer you wait.
Moving with change is inevitable – whether you want to or not.
See our latest blog on retail pricing strategies.
To help you along your journey, here (listed below) are 5 questions to ask before you begin your design and integration process. We cover how to design, structure and integrate a pricing team within the business in more detail in our e-book series, but here’s the quick, price advice guide to the questions you should be asking before take further action.
QUESTION #1: When should we start the design process?
PRICE ADVICE: It’s never too early. A 1% shift in margin, can equate to a $1M in EBIT. It will cost you more to wait and see. Large businesses and ASX listed businesses, like Caltex, BP, Winc, Wesfarmers, CSR, Repco, Brien, Toll, DHL, Oceania have all recently decided to implement price advice and have re-designed their operational system and pricing function to improve their pricing capability.
A cross functional team managing your pricing requirements on a part time basis is not the best price advice. A project team structure will not be enough to generate the ROI you want from pricing – and more often than not loses momentum.
If you are a company with an annual revenue of $100M+, our price advice is to install a dedicated pricing and/or revenue management team to set and manage price. The size and structure of the team is dependent on the size of revenue the team is managing and the challenges at hand. It’s a common mistake to under hire – and fail to stop margin leakage. Or over hire – and fail to implement the right structure or processes to drive more complex pricing outcomes.
It’s unrealistic price advice to expect employees with no dedicated skills or experience to manage and set prices in light of the potential upside / size of prize available, complexity of product range, customers and market segmentation.
QUESTION #2: Who should help us design and manage the integration of the pricing function into the business?
PRICE ADVICE: It is important to have subject matter advisers to contribute additional price advice to the design process, including price advice on team structure, team mix and diversity, specialist hiring processes, talent evaluation and assessment and team & software integration processes. We have seen a number of good pricing teams set up to fail which could have been prevented with the right price advice.
QUESTION #3: What’s the best way assign the right people to the right function?
PRICE ADVICE: There are three key areas of price advice to help you assign the best people to pricing roles:
- Don’t just rely on CVs and interviews or past success to assign people to pricing teams, use an evidence-driven approach to back up your decisions and feelings about someone.
- If you want to know how good someone is at pricing and revenue management, get them to take our pricing and commercial assessment and benchmark their performance against relative industries. It’s better to know whether someone’s going to be good fit for the role before they are placed in the role. They’ll appreciate getting constructive advice on their skills and development. They’ll also get a good insight into commercial pricing and the challenges and outcomes they’ll be expected to achieve in their new role.
- Don’t just see recruitment as a method to fill seats quickly; we find recruitment is a great opportunity to educate and engage future employees on the role and mission of pricing inside your business.
QUESTION #4: What’s the best way to design a pricing function?
PRICE ADVICE: No matter how similar two functions may appear to be, there are always differences in leadership, strategy, structures, operations, styles and capabilities. This means the price advice, design and integration process for a pricing function must be customised to the pricing function’s particular complexities and idiosyncrasies and grounded in the objectives of your business.
Proven pricing frameworks, team capability and evaluation tools and process can help you bring together these functional differences and help you design the appropriate pricing structure for your business. The entire focus of the process should be on value creation. Your approach to organisational design, therefore, must be flexible enough to match the unique requirements of the pricing function and business.
QUESTION #5: How can we break down resistance to change, and bring people along the journey?
PRICE ADVICE: Your teams and leaders are much less likely to resist changes to pricing strategy and operations when they’ve had a hand in shaping it.
To start cross functional collaboration, leaders must seek external price advice and upward feedback from sales and other departments. It’s better to understand what people’s objections to change are and they address them. There is always something to feedback, communicate and information to share — if not decisions, at least the progress along the way.
It is a mistake to assume that the sales force will be automatically resistant to a pricing function. Often sales are very welcoming of informed price advice and assistance from external consultant and pricing teams to help them win more business. What they are resistant to is being told what to do without a clear mandate or vision supporting the directive.
The design and integration process should help you broaden your scope – it’s not just about designing and integrating, it’s about establishing a strong vision for change for teams to believe in. The design and integration process can be a great way for teams to stop thinking in silos and start working together to ask and solve difficult questions and challenges.
An organisational chart should follow an organisational structure, not the other way around. Our price advice is to take individual names completely off the paper until the structure is designed correctly.
Structure dictates the relationship of authority and accountability in an organisation. Structure predicts how the pricing team will function – and more or less if the team will succeed in its mission.
For this reason, a good pricing team and the price advice they offer the business can only be as effective as the structure support it. For even the best of us, it can be very challenging to operate within an outdated or dysfunctional structure.
Successful pricing organisations, like GE, John Deere, Caterpillar, Shell, 3M know that if the goal is to drive growth and more margin dollars in highly competitive and disrupted markets, they need to operate within flexible organisational structures. They also seek impartial price advice on how to align their price and revenue models and teams to a changing business model and a new way of operating.
Restructuring done wrong will exacerbate attachment to the status quo and natural resistance to changing pricing. We find that when businesses change their strategy without evaluating or changing their structure, price implementations become disorganised, slow and disappointing – i.e., limited EBIT gain or even margin loss.
Alternatively, we find that when businesses change their structure, strategy and even assign new roles to people but have not developed or updated their internal price management practices and processes, new teams soon struggle to drive better pricing decisions and results.
Without good processes and price management practices in place, even great pricing teams end up firefighting issues on a daily basis and never really achieving the EBIT outcomes and results expected of them.
Additional price advice & tips:
You’ll know its time to start asking yourself and your team these questions (or seeking price advice) when business strategy and opportunity seem clear, people have bought in, and yet the company is slow, sluggish and taking ages to get things do effectively.
Perhaps it’s repeating the same execution mistake or making new hires that repeatedly fail – often a sign of structural imbalance rather than bad hiring decisions. There may be confusion among function and roles, decisions may only happen at the top of the org chart and decision bottlenecks occur within latent power hubs. Or perhaps price implementations are slow, disorganised or unfruitful.
If any of these things are happening, it time to do the hard but reward work of seeking price advice and creating a new structure, including designing a pricing team structure that drive sustainable profitability.