Profitable Growth is Everyone’s Business: What Consultants & Managers Get Wrong About Pricing? 📜
CEOs take on many risks when integrating a new pricing function within the business. Since profitable growth is in everyone’s business, it seems like failure is by far the most daunting part. But did you know you can avoid years of pain, angst, and conflict by not completely listening to what consultants say?
Yes, they are big brand consultancies. Of course, we’ve all heard of them advising CEOs leading major international corporations through a significant transformation. But, no, their advice isn’t always right. Look at their track record:
In this article, I’m going to share with you the typical consultant spiel on building an internal price management function. As a result, you can say “Thanks, but no thanks!” to years of problems, strife, and underwhelming profit results when you start to hear the pitch.
Tips for Everyone to Master Profitable Growth and Transparent Business Pricing
In his book, “Profitable Growth Is Everyone’s Business”, Ram Charan, a renowned business writer, provides some pragmatic, applicable, and fantastic views on how you can go about raising your revenue rather than just increasing sales figures. The author demonstrates that the secret to achieving such modest but impactful improvements is to involve everyone in the company in the endeavour. Not just upper leadership.
Offering our own rendition of recommendations on how to instil profitable growth in everyone’s business in your organisation, we will focus on pricing. Why?
Pricing is the core of your revenue creation process. It is a representation of everything you do as an enterprise. Your set prices establish the value that makes it worthwhile for you to develop your product and for your customers to purchase it. It is also your pricing point that tells your potential customers if it is worthy of their time and money.
In the following sections, we analyse the mistakes pricing consultants make so that you do not blindly accept their suggestions. We also emphasise transparent business pricing, which we believe will result in profitable growth.
Profitable Growth: Why do you need to disregard what most consultants and managers say about building a pricing function?
For almost two decades, consultants and managers have endorsed a prescriptive organisation design option for creating profitable growth, which is expectedly in everyone’s business. They say:
“Build a centralised, command and control pricing capability and you’ll be able to build a more profitable growth in business.”
Not quite. Rather, many Australian businesses are currently going through major transformations. Top-down leadership no longer works well towards profitable growth in building a business. I don’t think they ever worked for price improvement projects — we probably just did it this way because this is the only way we knew.
A command and control approach to pricing sounds good in theory. But after decades of trying, most Australian businesses are still struggling to achieve their full potential and drive profitability in practice.
To understand why this is happening, I’ve listed below the consultant rubric on integrating a pricing team within the business so that you know what not to do:
Consultants recommend you build a centralised pricing function – tight pricing controls and overly complicated price governance. Vague implementation plans.
Price like you’re in receivership and hope for the best approach…
Business managers write a few vaguely defined job ads and post them on LinkedIn, job boards and maybe go to a recruitment agency to find talent. As a result, job specs are overly technical and experience-based. There’s a distinct lack of insight into the behaviours, style, and capabilities of high-performance pricing teams. Good talent is instantly put off by the poorly written job ads are arrogant style.
The business requests HR to undertake an external search for pricing talent without adequately considering internal staff. Consequently, HR offers a little contribution to job role development, as the function is a relatively new and unknown entity. HR relies on CVs and interviews to hire new people for the new pricing function. The new hire churn rate is high due to bad hires, bad bosses, and problems with the new team structure.
The business is instructed to shift pricing responsibilities from individuals currently implementing it to the new pricing team to avoid margin leakage. Therefore this creates silos and divisions between departments instantly. The new pricing team struggles to balance the conflicts and trade-offs. It takes 2-3 years of hard work to gain the trust and respect of peers.
The new pricing team is left fighting massive amounts of resistance, conflicts, and trade-offs without support or sponsorship from the executive team. Hence, stakeholders and teams resent handing over their pricing authority to the new pricing team.
In other words, every step from here is a hard slog and battle. The pricing team is left fire-fighting random issues daily and loses focus on driving profitability. The business resigns itself to a pricing support function and never really succeeds in its mission to leverage pricing to build a profitable business.
If profitable growth is everyone’s business, does command and control help drive success?
By implementing a predictable, formulaic command and control approach to integrating a pricing team within your business, you’re creating lots of obstacles, conflicts, and problems for yourself and your teams.
Without the right culture and capability in place, it’s incredibly difficult for your teams to work cohesively with the pricing team to get the dollar value from any investment in pricing strategy, technology, and optimisation.
Too many consultants and managers still operate in a command-and-control system. A bit like the military, i.e., officers barking orders at their subordinates while keeping their true intentions close to their chest to confuse and bewilder their troops. Both approaches are assertions of control – one aggressive, the other passive-aggressive.
When new pricing hires and their peers in other departments aren’t sure what you want to accomplish by changing pricing, they automatically become resistant to change. They don’t feel safe, and workflows and implementation become easily disrupted and unfruitful.
Instead of acting with confidence and autonomously, teams begin to hesitate to make decisions; get distracted by low-level price operations and maintenance, or struggle to admit their mistakes.
If you want profitable growth to be in everyone’s business, hiring right can accelerate your journey.
Integrating your pricing team into the business does not have to be fraught with risk. There are better ways of doing it.
To discourage the command-and-control pricing set up a disaster (described above), I highly recommend that you put a lot of energy into hiring.
Reasonable pricing and commercial leaders and teams can be the difference between building a profitable business or struggling to protect your business from margin pressure.
Look for open-minded people who can take feedback. They are leaders and managers with reasonable levels of self-awareness. They know their capacity for advanced pricing setting roles. These people also tend to like working in teams and encouraging autonomy and collaboration even at the cost of control.
I also try to screen out the wrong ones early, i.e., people who are self-centred people and incompetent practitioners. This does not mean screening out people with the alpha dimension to their personality. It involves screening out people who think their alpha, but who are in fact beta, gamma or even delta. But too oblivious to realise.
Profitable Growth Is Everyone’s Business in Transparent Pricing
What are the merits of transparent pricing in promoting profitable growth in everyone’s business? Allowing your company to be more upfront about what it does and how much it charges can benefit you much in the long term. Greater prospects, larger customer bases, and, most significantly, higher revenues.
1. Transparent business pricing builds confidence with your customers.
Consumers view transparent business pricing to be a type of intimate openness, and individuals are usually more drawn to businesses that provide vital information.
According to one study, nearly 40% of small and mid-sized enterprises find it challenging to choose a supplier they can trust. More than 80% said that transparent business pricing statements from suppliers were absolutely crucial.
Transparent business pricing may enable your competitors to beat your prices. Nonetheless, honest disclosures result in long-term profitable growth for everyone’s business.
Clients, new and existing, want to feel empowered, with enough knowledge to decide. By transparent business pricing, you are informing your customers that you prioritise what is best for their firm, not yours.
And even when they do not eventually select your services, they will still have positive feedback about you and will be an excellent referral source in the future.
2. Through transparent business pricing, you can filter out bad prospects and only pursue excellent ones.
Every day, businesses a slew of inquiries. There are normally two kinds of prospective clients: those who are loyal and recognise the value of your brand, and others who are merely interested in lower prices.
For the second type, you are likely to get disappointed. Because pricing is more relevant to them than your service itself. Implementing transparent business pricing will eliminate inquiries you don’t want to bother wasting your time with.
3. Transparent business pricing strengthens your market advantage.
There are other critical aspects of your transparent business pricing than just the mere disclosure. Your business, in its own way, is one-of-a-kind, and even your close rivals can’t be like you. This means you are the true value proposition and competitive advantage of your brand.
Keep in mind that your price is what you charge for services, but the value you deliver to your customers and to the general market is more than just price.
The manner in which you interact with your clients, such as the timeliness with which you answer their enquiries and how you handle complaints or concerns. Likewise, if you exceed their expectations justifies your pricing. If you are capable and competent yourself, your prices will speak for themselves.
After ten years of consulting, research and executive evaluation it seems like these are the familiar themes and trends emerging:
- The centralised pricing model may not be as effective and efficient in practice as in theory.
- The transformation path to a command and control pricing model is a harrowing and challenging journey for well-established large corporations. Especially ones used to operating differently for a long time.
- The main trade-offs you’ll have to contend with a traditional command and control model are speed & effectiveness.
In short, the command and control model of pricing, and the typical road to get there can often work against you and your mission to make profitable growth in everyone’s business.
For a comprehensive view on integrating a high-performing pricing team in your company,
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at firstname.lastname@example.org if you have any further questions.
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