What Businesses Get Wrong About Price Review And Consulting Services 🧑🏼⚖️
“Customer and product pricing in this business is much more of a problem than they told me it was going to be coming into the role 8 months ago,” a Marketing Executive said to me on a video call. “There are layers of unnecessary customer discounts and rebates that are difficult to untangle. Poor promotional planning and execution for our retail customers. Basic cost plus pricing for our B2B customers. It is also very difficult to implement any improvements. We already have a pricing team in the business that mainly implements legacy pricing across multiple business models. We’ll need a price consulting initiative to simplify and improve our complex legacy pricing structure and system. The cost of not doing this is approximately at least $5M in margin loss each year.”
It was a good start. As for the rest of the call, I recommended the opposite.
“You actually don’t want an initiative. You don’t want to do any more “in” the current structure and system or even business.”
The problem with price consulting initiatives is that they are dominated by low-contribution people who, despite their sincere belief they’re helping and assurances that they are “totally supportive of the initiative,” very seldom do any productive work.
These people are dangerous enemies of any price review and consulting project.
If you don’t remove them, shut down the “initiative,” and instead focus on becoming an organisation with real pricing discipline, they will get fat on any financial successes your “initiative” amasses, coerce you and try to remove you, and then be the first ones to blame you when it all goes down in flames. Don’t bother with another price consulting initiative.
Work culture is a serious consideration for any leader improving their business’ pricing, but any change management approach that aims to change it is indirect or absent. The downfall of change management strategies is staggeringly apparent in their poor account of how they affect real business outcomes:
Consultants and executives do a bunch of work to build stakeholder alignment for the new initiative. In the background, there’s an ERP and/or pricing system integration plus a workshop series for managers to learn how to ‘Price Like A Pro.” Then, like clockwork, an unhealthy expectation emerges that “the initiative” will change “the culture” or finally inspire someone in the business to actually do some productive work. Or at least that’s the hope. More likely, it’s just inspiring a low-contribution majority to do their own thing or, worse still, protect their turf.
For any leader to impact their “pricing organisational values and culture” takes vision, guts and single-minded focus.
Jack Welch was one of these leaders. Not everyone agreed with him or liked his leadership, but he called out nonsensical complexity when he saw it. He had a passion for value differentiation and embedded value based pricing into the entire commercial process. He purged his team of time wasters and would not tolerate people who imitated productivity.
Parker Hannifin’s Donald Washewicz, likewise, was another CEO to call out a “crazy pricing scheme” in the then 83-year-old manufacturing business. He gave a long line of naysayers a ballot box and a piece of paper to air their long list of grievances against him and his proposed pricing plans and simply carried on regardless. When he started this journey, he didn’t know what good pricing looked like, but he certainly knew that he didn’t want to leave any more margin on the table with basic cost plus pricing.
Both of these leaders stand out from the background noise of conventional cost plus pricing practices even today.
They have become legendary tales in the pricing community inspiring a new breed of value based pricing practitioners and even new traditions of pricing innovation and excellence. Even after these leaders’ official tenure ended, their legacy still carries their mission until future generations of leaders pick up the torch. That’s how you influence culture.
Neither of these CEOs worked alone, of course. The greatest works were the efforts of disciplined teams and coordinated networks of domain specialisation across pricing, sales, marketing finance and IT. Strategic pricing doesn’t arise from nothing, it’s the combined expertise building on an extensive groundwork of knowledge, technique and investment over time.
As Isaac Newton said: “ If I have seen further it is by standing on the shoulders of Giants.” Newton, recognised past achievements of his predecessors as well as the often opposing ideologies of his peers. This dynamic tension between past learning and futuristic vision is the substance of a healthy and productive pricing culture.
The key drivers of a value based pricing culture are not ‘initiatives.’ They are not collective efforts to build socially acceptable norms around ideas, methods or values. Nor are they forms of intellectual elitism or management hierarchy.
The real core activities of a value based culture are disciplined teams coming together to achieve a great outcome, regardless of what everyone else thinks. They are organisations set up, mobilised and disciplined to achieve their great missions. They are leaders inspired by stories of past accomplishments and the future possibility of actualising a better commercial legacy and embedding that new reality into the fabric of the business culture.
The Time Before The Value Pricing Culture
Before there were pricing practitioners, dedicated pricing teams or AI pricing systems, algorithms or pricing societies, there was a loose network of individual managers cobbling together amateur product price lists and negotiating customer pricing off back-of-the-envelope calculations.
These people were not technicians or strategists, but regular managers inspired to action by incentives and ‘pressure from above’ to hit revenue targets. Teams didn’t specialise in strategic pricing before the 1970’s. Junior analysts were delegated pricing tasks and used basic cost plus markup mathematics to update prices each year.
Pricing and price consulting was a ‘set and forget’ administration task.
Then, from the 1970s onwards, airlines implemented a new type of pricing system based on multiple price tiers. This is how revenue management began: Airfare tickets were separated into several price buckets. The first price bucket was set at the lowest price tier, then, when it was full, the system would move to the next price bucket, which was set at a slightly higher price tier than the one prior and so on until all buckets were full and the flight was fully booked.
Pricing under early revenue management was not dynamic at all – it just gave the impression of being dynamic. Albeit simple, airline pricing set a precedent for other industries and businesses; excluding B2B which remained fixed on safeguarding the status quo.
Next to shine the torch for pricing was retail and FMCG businesses. But, even well into the 2000s, there was no one business pursuing value based pricing per se. Pricing decision-making was still decentralised as was execution. Pricing setting was ultimately cost plus and based on internal margin targets; and pricing and promotions, although frequent, were tactical in nature, reactive to hearsay and individual customer feedback, and largely lacking any real consideration of market and customer factors.
It was not until 2010 and onwards that value based pricing and dynamic pricing gained traction in Australian B2C and B2B. Before rapid technological advances, companies were testing the waters and dabbling with pricing.
It was the platform revolution and e-commerce that firmly punched strategic pricing into mainstream Australian business culture in any lasting sense.
Since then the loose networks of sales, marketing and finance analysts doing their own thing has been gradually replaced by dedicated pricing teams using commercial systems, data-driven insights and models to maximise margins and optimise revenues. And not just in retail, fuels, airlines or banking, but in B2B manufacturing, distribution, chemical, agriculture, engineering, after-parts markets, tools & consumables, construction, logistics, packaging and much more.
The first of these pricing teams was designed by McKinsey to act as ‘pricing policemen’ seizing control of rogue pricing and sales decisions damaging margins and reputations. This was a divisive move by McKinsey for teams and culture. Then, the pricing team went in the opposite direction and morphed into a back-office price administration function with no power or influence over pricing or sales decisions. In effect, they became a reporting adage to finance.
This made the pricing function and price consulting expensive cost centres.
Nowadays, the role of pricing teams is a mix of roles but generally, it has taken a more advisory function in a business. Saying that, though, many businesses still don’t really know how to install them properly or what to do with them when they’ve got them. The majority of pricing teams are yet to unlock their full potential to drive profitability in their respective markets. Pricing teams and culture are by no means sophisticated or mature.
Improving pricing is not a straight line, upward trajectory: The real game worth pursuing when it comes to building a “value based pricing culture” is this life cycle of possibility, adoption, improvement, and material value capture. First, there is the articulation of possibility by a visionary leader, like Parker Hannifin’s Donald Washewicz.
Then, there’s a time for thinking (not reacting): scoping out the data and size of prize, forming hypotheses, devising tests and trials, developing roadmaps for pricing strategies roadmaps, setting goals and timelines and designing specific pricing plans and team plans. After this, the starting gun sounds and the race is on: new adventures and new pricing heroes come to the fore, like Richard Braun (The primary pricing director appointed by Washewicz).
This time it’s his team pursuing the vision, but now they are equipped with specific plans and a pricing toolkit that can be applied in an intrinsically motivated and practical pricing discipline.
Over time, when the basic essentials are covered, more teams, divisions and work streams are added to fix even more complex problems, accomplishing in turn even more specific and greater outcomes. Once successful, the material EBIT improvements generated from being a disciplined pricing organisation become the mythic inspiration of a new generation of leaders and teams. At almost no point during this transformation does it matter if stakeholders “approved the initiative” before it all happened.
It was not the GE board or the executive team’s support for Welsh’s new ideas or even the appreciation Jack Welsh himself showed his teams at the time that turned his visions for pricing into Jeff Imelt’s reality (the successor to Jack Welsh). Even once the new pricing strategy and team put earnings on the board, it was the underpinning commercial system to coordinate teams and deliver real outcomes, no matter what. This is the real substance of GE cult-status and stories, not management consensus or approval.
The stakeholder approval passing for “a good culture” in business today is like Elmyr de Hory’s paintings. It’s fake. But somewhere outside this false show of stakeholder approval is the bare coal face, where productive work gets done. Where driven teams strive to make a difference despite the hurdles that are placed in front of them. The only value of change management ideas for pricing transformations, then, is their ability to inform and accelerate desired action in this material world where great pricing work gets done.
This is how pricing discipline and price consulting manifest materially.
If you want anything done at work or want to see true price excellence, don’t bother with indirect change management strategies or persuasive communications that shout: fake. You yourself have to create the world you want to see.
It is fruitless and frustrating waiting for across-the-board approval. It drags out the pain of change and is costly and divisive. Like all successful leaders in history, harness the productive tension of your teams, respect past learnings, and lean on an optimised commercial system to drive your vision at scale top down and across the business. This is what cuts through politics and pricing complexity.
How do you move from a complex, legacy cost plus pricing to value based?
A week later, I was on a follow-up call with the same marketing executive. She wanted me to convince her leaders that value based pricing was right for them. “I understand the value, but the CEO comes from a finance background and doesn’t really get it.”
It is actually quite common to hear this in price consulting. When executives say this to me, what they are trying to say is that they’re in a slow-moving company with an unhealthy culture. Yet knowing how I’ve helped businesses just as sick as theirs generate an additional 10 per cent margin in < 6 months won’t help them. “What kind of business do you want to build?” I replied.
The accomplishments of great leaders we admire are not down to their charisma or personality or even their IQ. They are the products of competent and unencumbered commercial systems. It wasn’t consultants. It wasn’t the culture. And it wasn’t even the competent teams and consultants they had around them with all the good ideas.
It is a carefully crafted commercial system that captures all ideas and actions them. It is the ongoing capability building along the way. And it is a platform to unlock the full potential of competent people to carry out their visions, no matter what. That’s what really makes the difference in pricing – not the consultancy powerpack.
Making changes in a commercial system, gradual or sudden, can free up the creative energies of a business. When we see some great act of energy and confidence in a business, it’s because some group of highly competent people with good ideas simply fix things.
To create a materially productive pricing culture and price consulting, then, you need an iterative and unencumbered commercial system.
Occasional barriers and crisis points provide openings for visionary leaders to step in and totally change how pricing should be in a business and industry. Ramon Laguarta from Pepsico took advantage of the covid crisis over 2020 – 2022 and moved their salty snacks division globally from cost plus to value based pricing:
First, he had a vision where the business knew their customers better than they knew themselves. Then, they utilised first party shopper data and customer consumption data and customer insights to develop new customer-focused pack price architecture strategies for all salty snack ranges by region.
Simultaneously, they developed value family bundle packs for brands on supermarket EDLP programmes to drive up volume in established, household categories experiencing year-on-year volume decline. Then, they sought to increase prices strategically across the long tail of products and inelastic single items to capture incremental margins under the radar.
Not only did new, smaller pack sizes and product variants satisfy the need for healthier snacks across consumer and shopper segments, Pepsico was able to increase average unit prices as they decreased average unit pack size and weight to cut costs. This new global convenient foods strategy created a whole new healthier snacks market. It also delivered 20% organic revenue growth at the end of a very difficult couple of years (well above the group’s average).
Ramon Laguarta had his teams helping him, of course. But just like Jack Welch and Donald Washcewisk, Ramon Laguarta did not just talk about new ideas and let his team do their own thing. Rather, he had a commercial system to optimise and direct a network of highly skilled practitioners to apply pricing discipline to reach shared goals and impressive EBIT results.
There will always be gaps and room for improvement in pricing and price consulting. This is business.
Gaps give us opportunities to be better. A chance to innovate and drive transformation. The current work culture is often too sick to listen to new pricing ideas, let alone instigate them to fruition. But the crucial ingredient that will make the difference even in a sick work culture is an iterative commercial system to unlock pricing discipline to fill gaps and actually achieve the great things you want to see in your teams and business.
With the presence of such a commercial system and world-class pricing practitioners, you can quickly seek support when the inevitable profit crisis occurs. Without this system and domain specialisation, only a slow decline will occur, and there will be no solution for crisis moments.
Pricing Specialisation Dispersed In One Commercial System
But all this discussion of new commercial systems for your pricing and commercial teams, value based pricing schemes, new ideas, and missing coordination mechanisms only provides us with the theoretical backdrop for the key question: what pricing strategies, structures and operational activities should you be pursuing to directly simplify outdated legacy systems and improve how you do business with your customers? What is the right thing to do?
Our commercial system, which we call Value Culture, has an easy answer: if you want to see your teams driving your commercial strategy successfully across the business just like peers and competitors you know pulling off strategic pricing to generate more shareholder return, then you should be directly taking on the responsibility to pursue this commercial system and using it to further actualise your vision.
Attempting to simplify and improve complex, legacy pricing is often a very political kind of project, but it’s not a price consulting initiative.
It is not about culture. It’s not about leadership. It’s not about you or me or seeking approval from the board or the ELT. And it’s a discipline. It’s about taking responsibility for commercial strategy into your own personal hands, perhaps in collaboration with others in the business who are trying to do the same. It’s about going out to your team and to the market in a competent and intentional way, and applying strategic pricing techniques to solve real and complex problems. It is about guts, courage and single-minded focus to redesign a failing price structure. And it’s about avoiding painful change, and cutting our nonsensical complexity and meaningless operations.
If you want to harness productive tensions that instigate direct action on the things you and your customers actually care about.
If you want to break down the suffocating walls that trap you and your teams. And if you want to silence the loud voice of liberal self-interest and bolster high-potential people. Then, consider this: use an objective, iterative and unencumbered commercial system with coordination mechanisms.
1 per cent improvement a day is all it takes: Monumental historical deeds start with a brave hero taking action to manifest a new material reality. If you’ve started a leadership role to explore material pricing possibilities and price consulting, it’s a good thing to do with your life.
The pricing discipline and price consulting may have started off as an immature function but it laid the foundation for generations of successful leaders, teams, and experts. The discipline of pricing is the mechanism upon which leaders drive continuous improvement. Using your muscles and following a program is the way to get fit.
If you exercise your pricing muscles, then, you’ll not only get stronger faster, you’ll be good enough to compete with the best. You’ll also find your teams can solve even the biggest problems on their own. And that’s when your vision becomes a material legacy with an eternal flame.
For a comprehensive view of building a great pricing team to prevent loss in revenue, Download a complimentary whitepaper on How to Hire and Train Pricing All-Stars.
Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?
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