Pricing Leadership

One of the biggest differences I have noticed in the European community as compared to the US is how different two “neighbors” might be.  For example, take Germany and France. They are geographically next door to each other; but they are miles apart in most aspects – and their approach to pricing is no different. If one company operates in both countries, it is expected that each country will have their own approach to pricing. On the flip side, in the US, while California and New York are miles apart (and there are many additional differences in addition to geography), if one company operates in both California and New York, it is much more likely there will be one approach to pricing (if not one, a least similar enough approaches that may be managed centrally). Thus, a “global pricing approach” is not a simple, straightforward strategy in Europe as is tends to be in the US.

That being said, how a company goes about implementing a global pricing strategy must also allow for and expect the complexities that currently exist in managing the business centrally. If for instance the current business environment is very much decentralized, having a central pricing strategy is not reasonable in the short term. Ignore the change management aspects for the moment, the simple logistics of understanding the diverse and disparate pricing methods and go-to-market strategies that currently exist are immense. The long-term plan should account for this and not expect one, global approach to be implemented in the near term.

However, this does not mean that companies, especially those that are very decentralized in their management, cannot achieve great value by taking a global approach to pricing. It just means that their time horizon must be appropriately set. For example, one customer here in Europe has a long-term vision that includes roll-out of a global pricing process to roughly 40% of its worldwide business (represented by countries and regions of countries) by 2015 if not beyond. Pause and read that again… “global process” for 40% of its business. ”How is this truly global?” you might ask. It’s simple: they are not planning to stop at 40% but they are pragmatic in their approach to ultimately reach 100% of their business. Regardless, as this customer has already begun the global process country by country, it is achieving great value already.

Also, setting up a global pricing process should not imply centralization of power. In fact, it can amplify the current independence and power of the remote business units. Another customer here in Europe is rolling out its global process and by doing so, is providing guardrails that its remote businesses must operate within. But at the same time, it is providing much more information to the remote business units; so much that the decisions those remote business units make are now better supported and therefore, they should be able to operate more independently within those guardrails.

In summary, companies, especially those that operate across cultural borders, should view a global pricing process as a journey. There is extreme value to be made along this journey, but it will take time. Prioritize your “low-hanging fruit” to maximize your return, but commit to the long-haul.

Seth Godin’s blog post, Priming the Pump of Efficiency, reminded me of a presentation I recently attended by Cameron Davies, Sr. Director, Business Insights & Analytics, at the Walt Disney Company.  If you ever have a chance to see him speak, make sure you take it – he is excellent.

Amazon.com describes Seth as a best-selling author, entrepreneur and agent of change.  I’ve read several of his books, starting with Free Prize Inside, but what interested me on his post falls into the area of change management.

Seth basically says that change is disruptive and therefore many companies choose not to innovate because in the short term the disruption (pain) outweighs the long-term benefit (gain) of innovation.  In short, executives fear change.  However, he goes on to say that the organizations that choose to make strategic investments (change) tend to be the ones who are either market leaders, or the ones who leapfrog the market leaders (major gain).  These are the kind of companies we find that are implementing price optimization solutions.

Connecting to Cameron’s presentation – in his conclusion he has 5 immutable laws of change.  Two of these key laws, simple and powerful, are the following:

• Change drives value
• Change is essential for survival

Where Seth indicates that change is disruptive and can be costly in the short run, PROS has demonstrated the ability to generate millions in profit improvement in 30 days.  This turns this part of Seth’s post on its head in that PROS rewards you for your efforts right away.

Getting back to Cameron, his presentation outlines that industry adoption is not a zero sum game, but the sooner you start, the better off you will be.  For the innovators and first movers, Cameron projects revenue gains up to 20%, and even if the entire industry adopts pricing technology, there are still 4% to 8% gains across the board.  Cameron also presented the scenario for non-adopters.  In that case revenue declines up to 12% are possible and bad systems are equally negative.  His presentation footnotes these numbers are based on simulations done by a group at MIT managed by one of PROS’ Science Advisory Board Members.

Going back to Seth, yes, change is hard and can be disruptive.  But as Cameron says, change drives value.  Change is essential for survival.  The value of price optimization systems can be significant.  The advantage is to the innovators who choose the right tools and right partner.  Successful companies embrace the opportunity of change.