Pricing Science: The secret to how big business unlock their pricing power
Pricing science: Louis Pasteur once declared: “Science knows no country, because knowledge belongs to humanity, and is the torch which illuminates the world.” The same scientific and human principles hold true for the pricing discipline. Businesses with high performance pricing teams have repeatedly seen the wisdom of his words.
Innovative pricing and customer value research, depends on businesses producing ideas and hypothesis shared across sales, marketing, pricing, supply and finance. Even when economic uncertainty was raging across the US, Europe and Australia in 2008-2009, GE, Whirl point, IBM, Proctor & Gamble, IBM, DuPont, Caterpillar, were implementing price trials. They were also testing new value based segmentation frameworks across Australia and other global regions to test their assumptions on value, price and how to drive profitability using more innovative pricing strategies, analytics and best practice pricing.
Pricing science – how trials and studies are the base of improvement
Both successful and unsuccessful price trials and experiments provided these businesses with the scientific proof required to align their pricing and contracts to changing business and operating models and regional differences. They also helped to reduce margin erosion during a time of global uncertainty and political unrest. During the years of 2008-2010, many of the leading businesses (above mentioned) put aside internal and competitive differences and radically changed their operating models; including their views on how to do business and generate consistency of supply for their customers.
In recent years, for example, Australian based businesses have taken some crucial steps to improve collaboration and achieve complex pricing science outcomes: Over the past 3 years in particular, CEOs such as Mike Kane (Boral), Rob Sindel (CSR), Kristin Holgate (Blackmores), Alan Joyce (Qantas), David Teoh (TPG) have spoken about the importance of partnering with a broad range of functional disciplines across the business to develop operational and/or supply chain efficiencies and capture hidden cost and pricing opportunities brought about by better operating models and changing customer preferences.
In forming new unions and value based ecosystems, leading businesses have learned to work with each other to reduce volatility in supply, lower capital expenditure, increase margin opportunities and increase consistency of supply for their customers. They have also learned how to monetise the value created by optimised operations and upstream supply by bringing together trading and pricing operations within a centralised framework and well-crafted visualisation dashboard. They have broken down traditional silos and fixed mindsets created by isolationism of intellectual property, turf war and resistance.
These CEO Australia leaders are all contributing to Australia’s infrastructure and innovative boom in some way or another. They are creating novel and highly specialised pricing science (see pricing executive leadership) and commercial jobs and offering new management principles and better ways of doing business. Most importantly they are sharing intellectual property to achieve a larger collective goal which spreads prosperity across a broader ecosystem.
For better pricing to really take hold (and to get the results you want and expect from your pricing and commercial teams), we need all leaders and teams’ assistance to deliver more complex pricing outcomes. To improve price setting, management and administration, we must partner with sales and marketing because they have direct access to valuable customer information and can sense check competitor intelligence and price trials. To help limit the effects of conflicting business directives for margin, market share and profitability, we need all the executive leaders, including supply, marketing, operations, finance and HR, to take steps to address pricing and people issues and work toward innovative solutions that will help develop organisational pricing competency, resiliency and prosperity.
Let’s resist the urge to turn inward. Let’s not isolate ourselves from each other and our customers by assuming our customers are purely price driven. Instead we must continue to strategically and positively influence and educate our customers, our teams and ourselves on better ways of doing business and capturing these innovations in our pricing strategies and structures. The combined force of specialised knowledge, commercial insight, carefully curated networks and scientific process are an extremely powerful collaborative device. We gain far more from collaboration and partnerships than we risk. Weakening them will hurt us all.
If you liked our blog on pricing science – see our blog on building a pricing career.
See blog on tips to reduce sales team’s price reduction approach.