Last month, the Professional Pricing Society held its 2012 Fall conference in Orlando, bringing together pricing professionals from around the country to learn impactful strategies, tactics, and techniques to improve profitability. Here are four key takeaways from the conference:
Organizations Continue To Underprice Relative to the Value They Deliver
In his keynote speech, Reed Holden of Holden Advisors discussed how companies are failing to sell high value products or services at a fair price. Too often, prices fluctuate due to changing customer requirements and specific selling situations, and even skilled salespeople fall prey to discounts, which damage profits. The result is market-based—or according to Holden, iterative—pricing, where price iterates downward over time because price is a function of sophisticated buyer demands, completely disconnected from value. As “guardians of profit”, pricing professionals must turn toward value-based pricing, even if concerns persist on its precise definition or that it may be difficult to implement.
How To Use Big Data to Drive Pricing Excellence
We’re all aware of how big data is becoming an increasingly important way to improve pricing analytics to drive pricing excellence. Paul Adair, Director of Strategic Pricing at Polyone, provided additional thoughts on how organizations can productively navigate large amounts of data to extract practical insights for their business. When analyzing data, it’s better to strive for consistency rather than accuracy because addressing every minute issue can negatively impact scope, budget, and adoption. In other words, “It is better to be consistent all of the time, rather than to be right some of the time.” Paul also recommends the use of visualization tools, such as charts and graphs, to represent data in lieu of spreadsheets and numbers. Turning numbers into pictures makes information easier to digest, and can yield new information that leads to practical decisions. Finally, it’s dangerous to rely on “averages” when analyzing big data. This is because averages provide a false sense of reality, and do not show “excellence and problem areas.”
Procurement Departments Have Become Much More Sophisticated
Procurement professionals are greatly motivated to drive discounts up and get the lowest price possible for your product. They are particularly good at employing sophisticated tactics towards the end of the quarter or year, when salespeople are most vulnerable to discounts and less profitable deals. We have seen the rise of the “poker player” in procurement, leveraging deception and other various tactics, such as multiple RFP rounds and surfacing phantom competitors, to drive down price. Therefore, it is critical that pricing professionals give salespeople the information they need to understand the value of your offering, and make them aware of these procurement tactics. This will give them confidence that the price is fair, and they will be in a better position to negotiate.
We Need a Common Language Around Pricing
B2B companies have many different ways of talking about pricing, and although this may give the appearance of totally unique strategies and approaches, in reality there is not much variety in how they operate. This makes it difficult for pricing professionals to learn industry best practices, which in turn hinders their ability to implement a pricing strategy that drives maximum profits for their businesses. Developing a common language for pricing will go a long way towards solving this challenge. Neil Biehn, VP of Science and Research at PROS Pricing, argues that most B2B pricing falls into one of the following high-level categories: spot pricing, contract pricing, list pricing, subscription pricing, and promotional pricing. From there, business managers need to recognize that these all fall under a few common scenarios: negotiated vs. non-negotiated, high frequency orders vs. one-time quotes, and cost-to-serve vs. sunk cost. By working within a framework of industry best practices, pricing professionals will better learn how to price for their organizations.