For many organizations, the price-change process is a time-consuming, unpleasant and imperfect process that everyone knows must be done, and no one wants to tackle. When I was a pricing analyst many years ago, I remember how our annual price-change process felt like the TV show Wipeout® – a never-ending series of obstacles from which we weren’t certain the gain was worth the pain. Among the obstacles we faced:
- Pulling together the data: There were at least three databases scattered across the organization from which we pulled transaction, product and customer data. We then mined the Internet for competitive pricing information, and that was before we aggregated all the data into a single dataset so we could develop an analysis. That process took four weeks.
- Seeking input from the sales & product teams: We asked for R&D costs, product comparison matrices and competitive intelligence from the field. In return, we received a series of files in various formats and states of completeness, with no consistency among them. Add another couple of weeks.
- Running the analysis: With a range of quality and quantity among the data, the analysis was a “best guestimate” effort on how our markets valued our products. Add two more weeks.
- Navigating the politics of price changes: Recommending price changes to product management was like offering advice to people on how to parent – it almost always elicits a defensive response. After the initial emotional reaction, we could then have a data-driven discussion. But with numbers that everyone knew were “guestimates,” it was hard to not fall back on individual opinions. Add three weeks.
- Operationalizing the decisions: The sheer number of systems to update, none of which integrated pricing data among each other at the time – ERP, CRM, Marketing Ops – took another three weeks.
Does your organization run price updates like this? You are not alone … many companies do.
Any wonder why this process took 3-4 months, and we only conducted it on an annual basis?
The challenge is that when it takes 3-4 months to update your pricing, you don’t get timely updates. In today’s volatile and ever-changing markets, agility in pricing is a requirement, not a luxury. And it can’t be a game of Wipeout, unless you plan to lose your best pricing analysts.
- Evaluate the frequency required for making price changes to deal with market dynamics. Petroleum companies need systems that allow for multiple price changes a day. Electrical distributors may need to make a price change only once every other week. Software companies may need to make a change once a quarter. The agility required by your markets will dictate your price update frequency.
- Understand what data you need and where you’re going to get it. To truly be agile, develop a plan for a pricing database, if your organization doesn’t have one. The database should include both internal information – product, customers and orders – as well as external data – industry benchmarks, competitive intelligence – so the information can be pulled on demand.
- Hold data-driven conversations. Since everyone touches pricing, everyone has an opinion on how it should be handled. When you have the facts on what your customers are paying and what the competition is doing relative to the value you provide, you can change the conversation from personal judgment to one based on data.
- Choose a single source of pricing truth: Whether it is ERP, CRM or another system, select a single database that is the “pricing master” and challenge your IT organization to make sure that data needs to be updated once and then duplicated rather than having multiple points of entry.