McKinsey&Company see how pricing is an important source of revenue and profits, although only those companies who increase their level of analytical rigour and practical know-how will able to reap the benefits. In order to turn your pricing into a profit engine, they believe you should do the following five steps:
- Provide meaningful transparency into pricing data
It has been argued that pricing managers often lack a clear understanding of how profitability varies between regions and product lines, knowing even less about how it can vary among individual customers or transactions.
- Understand what customers really value
The price of a product or service ultimately depends on how much your customer thinks it is worth. The best companies augment their pricing analytics with detailed customer insights. This helps in identifying all the key buying factors that determine how much a product is worth.
- Move from sales reps to value negotiators
Determining the best price means nothing if the sales rep can’t convince the customer to accept it. For this reason, it’s critical that price setters sharpen their business skills. Building negotiating skills in particular is critical. In practice, this often requires spending time understanding how the price recommendations are made and what the reasons for them are so that the rep has confidence that the price makes sense and is defensible.
- Provide on-the-job training to build confidence
While most companies understand it is important to build the pricing skills of their people, few move beyond basic training in classes or online. Successful companies, however, use adult-learning techniques, such as experiential learning, to embed the new skills in the front line. The most effective programs rely on a mixed model of education and implementation known as “field-and-forum.”
- Sustaining long-term success
Companies need to overcome entrenched habits and shifting priorities that doom most change programs. Ingraining pricing success over the long term requires putting in place an “influence model” that includes: role modeling, fostering understanding and conviction, developing talent and skills, and implementing reinforcement mechanisms.