![]() ![]() A central staff of pricing professionals could ensure pricing consistency thanks to the availability of large data sets, advanced analytical power, and algorithms that set strategically optimal prices. The somewhat undisciplined nature of the decentralized model has prompted many companies to limit sales’ pricing authority and switch to centralized, data-driven price decisions. We recently helped an enterprise telco company identify revenue leakage of as much as 550 basis points, well within the range of 400 and 800 basis points of margin opportunity we typically observe for companies at that maturity level.Ĭentralized, Scientific. Tighter revenue management discipline can stop revenue leakage and yield significant margin opportunities. Whenever we help a company at this stage map its price realization by revenue or volume, the result is often a scatter plot with no visible rhyme or reason our experience shows that the greater the apparent randomness, the further the company is from implementing better pricing governance. But from a portfolio or company-wide perspective, the model can look undisciplined, if not chaotic. Many industries prospered under this low-tech model, and many still use it today. This model tends to work best when customers have limited bargaining power, customer concentration is low, and companies have sufficient margins to tolerate profit leakage. They did not rely heavily on centralized information or insights, save for basic segmentations derived from easily observed parameters such as volume, geography, and industry. B2B companies would grant significant price discretion to their sales organizations, who relied on the experience and gut feelings of their salespeople to make price decisions and close deals. The classic “low tech” sales model was decentralized and mostly managed by the salespeople themselves, who established and nurtured relationships with their customers. This model-which we call “smart pricing authority”-empowers talented sales individuals and teams to pursue the most attractive customer opportunities and strike deals that maximize value for the company and the customer.ĭecentralized, Sales Led. We envision a new approach to B2B pricing governance, one that combines the best aspects of those that came before it without forcing the same tradeoffs. ![]() These models have evolved in many industries as competition has intensified, analytical power has increased, and pricing science has become more advanced-but they inevitably create conflicts that often require uncomfortable tradeoffs. Governance models determine how business intelligence, pricing authority, and negotiating agility are managed and distributed throughout an organization. Pricing governance may not be as sexy as pricing strategy, dynamic pricing, or anything connected to AI, but no sales operation works for long without it. Put more precisely: what governance model will ensure that these teams work in harmony to maximize the value the company can derive from pricing? And that’s a symptom of a deeper problem faced by nearly every B2B company, regardless of sector or size: how to keep sales, pricing, and management teams aligned around a common objective. What is the “job” of pricing in a B2B company? Smart pricing authority keeps them on course. When B2B companies let technology drive their pricing governance models, they can lose sight of their strategic objectives. Pricing governance may not be as sexy as pricing strategy, dynamic pricing, and AI technology, but it serves as the glue that keeps teams aligned shared strategic objectives. Creating “solution spaces” within which sales teams can rely on their own experience, enhanced by real-time analytics best performed by AI applications.Allowing sales and pricing teams to focus on the full merits of a potential deal-and its contribution to overall company performance-rather than on the accuracy of a black box’s price output.Combining business intelligence, pricing authority, and negotiating agility in ways that make them mutually reinforcing.Smart pricing authority resolves those tradeoffs by: But maintaining that focus requires a model for pricing governance, a decision which often forces uncomfortable tradeoffs. The CEO’s Dilemma: Business Resilience in a Time of UncertaintyĬompanies make the most of their investments in pricing teams and technology when they focus on the new job of pricing: maximizing customer value.Technology, Media, and Telecommunications. ![]()
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