I’ve been in the pricing space for two years now, and I can comfortably report that pricing is a cause.   It’s a cause centered on the belief that better pricing can fundamentally and dramatically improve the way companies market and sell their products and services, as well as serve their customers.  And it’s a belief that better pricing makes better companies, and better companies make better employers … and better investments. High-performing companies invest in pricing, and turn it into a strategic advantage.

I’m a believer. And that’s why I am so excited about the incredible boost of visibility the pricing cause received in CIO Magazine. The February cover story says it all:  New Mission for CIOs:  The Art and Science of Pricing.

This feature provides a great example of the extraordinary impact price optimization can have on a business. Waste Management reports generating $218 million through smarter pricing and expects an additional $3-5 billion in the coming years. Just as important, the company pursued a price optimization strategy as a means for fending off commoditization of its services. This is an excellent case of a company that recognized the role pricing could play in solving an important business challenge and then reaped the financial rewards. It’s good for everyone in the pricing industry when a company reveals the truly extraordinary impact that pricing excellence can have on their business.

It’s also important to note that it took underlying technology – in combination with a sound pricing strategy and organizational commitment – to make pricing optimization a reality at Waste Management.  Technology delivered on the promise of pricing.

These data points should get the attention of any CEO, CFO, CMO or CSO looking for the highest yielding growth and profitability initiatives, not to mention those looking for a competitive edge. $218 million in ROI simply cannot be ignored, nor can the use of price optimization as a means to fend off commoditization – or said another way, to realize the true value that a company offers. Name one other technology or organic-growth strategy that can yield a hard-dollar return even close to $218 million in a single year. And I can comfortably say this result from Waste Management is not an anomaly. I know of many companies that have realized returns like these, and even higher.

As a CMO, I have to decide which initiatives to pursue at PROS that will yield the highest return against company goals. So does our CFO, CSO and every other executive. If I were informed about a strategy or technology that could have the magnitude of impact on my business that price optimization did for Waste Management, it would be irresponsible of me not to investigate the possibility of doing the same for my business.

So that’s my challenge to all readers of this blog. I challenge each of you to share with your executive teams this incredible story about Waste Management and see if it moves the discussion about pricing excellence to a C-level imperative … and brings more business leaders into the pricing cause. A world where every company prices smarter means a world where more companies can hire and retain their people, can invest in innovation, and provide a greater return to shareholders. Take the challenge and spread the word!

Thanks!

Tim

Finding ways to improve profitability has never been more at the forefront of the minds of CFOs than now, as companies strive to remain viable and competitive in today’s market.  With competitive pressures at an all-time high, increasing stringency in government regulations, and continuing volatility in commodities pricing, companies are faced with finding innovative new ways to grow margins and meet shareholder demands.  Within this context, it’s no wonder the promise of pricing – a mere one percent improvement in price can positively impact revenue by nearly nine percent* – offers an extremely  attractive value proposition to CFOs, as “guardians of profitability” for their companies.

In fact, in the recent Duke University/CFO Magazine Global Business Outlook Survey, pricing made the list of top three concerns that keep CFOs up at night.  What was once considered a “black hole” is now emerging as a key component of corporate growth strategies, as business leaders, like the CFO, embrace the power that pricing can wield when it comes to turning around financial performance and delivering much-sought-after margin improvements.

Yet, a solid pricing strategy alone is not enough to yield the results CFOs are looking for.  With leaner staffs and the need to more quickly respond to changes in the market, companies are quickly discovering that labor-intensive tools, such as surveys and spreadsheets, are not only inadequate but also place their organizations at risk, as their competitors seize this window of opportunity to take even more precious market share.  More and more companies are now turning to advanced pricing software as a more powerful and efficient means of optimizing pricing at the customer and transactional level, identifying and fixing profit anomalies, and ensuring compliance with their pricing strategy – all of which lead to significant increases in profitability and a greater competitive edge.

The pricing software market has been steadily growing, as more and more B2B companies discover they can harness the true power of pricing by successfully implementing pricing software across their enterprise.  Today, with the level of maturity of the tools available and the number of proven successes among leading companies, the pricing software market is now entering the mainstream.  This trend is evidenced by a recent article in CFO Magazine, “The Price is (More) Right,” that highlights the increasing need for CFOs to focus on pricing and leverage advanced tools and capabilities to give their companies the competitive and financial advantage they need.  With the right technology in place and the leadership of the CFO, companies can harness the power of pricing to deliver financial results that will put them head and shoulders above their competitors.

*Source: Baker, Marn, Zawada, McKinsey & Company – The Price Advantage (2^nd Edition 2010). John Wiley & Sons

I read a great article this morning at CFO.com entitled “The Queen of Soul’s Ode to CFOs.”  In this piece by Bud Kulesza, he outlines the top ways in which CFOs can engender trust and respect from their organizations.  One such way is “to work with the rest of the organization to increase understanding of what the ‘numbers’ mean and how to use them to make better business decisions.”  As I read this point, one instance in particular came to mind where better insights could lead to better decisions -  pricing.

I had the privilege of hosting two CFO roundtables earlier this year at the CFO Corporate Performance Management conference. The topic we discussed was the credibility gap between finance and sales when it comes to pricing: finance thinks sales just gives away deals; sales thinks finance is out of touch with the market when it comes to pricing.

Most of the CFOs agreed that one way to close this divide is by finance providing more granular, fact-based insight into historical customer transaction data that reveals not only true customer profitability, but also true customer willingness-to-pay. With this depth of fact-based insights based on irrefutable buying behavior, finance can credibly contribute to “right pricing” for products, customers, and deals. And sales will be more inclined to respect and trust finance for providing useful, timely, and market-relevant data that helps them win more business profitably. CFOs agreed overwhelmingly that this approach would go a long way to close the trust gap with sales.

If you’re interested in learning more about willingness-to-pay, I encourage you to download a whitepaper on this topic written by Dr. Neil Biehn of PROS.