Last weekend I read two articles about leadership in the Harvard Business Review which were not specifically about pricing best practices, but are very relevant. Don’t Spin a Story. Be a Better Company by Leslie Dach makes the point that “it’s a huge mistake to assume that once you’ve explained your perspective, the public will embrace you.” Walmart was used as an example of a company trying to move beyond telling their story, to becoming a great company. The Walmart example is applicable to any company trying to improve their pricing capabilities.
It is certainly important for the CEO and the entire senior management team to talk the talk about pricing strategy and the impact pricing has on profitability. They have to talk to their team about bringing value and selling value to their customers. They need to emphasize to the team that unless competitive advantage is a lower cost structure, leading with price is not a winnable strategy, but they can’t stop with talking the talk. More importantly, they need to walk the walk. The management team should ask “what does it take for us to become a world-class pricing company?” and then lead the company there.
Senior management needs to be visible in making sure all the employees understand the company strategy – where they will compete and how they expect to win. The management team needs to ensure the pricing strategy reflects that competitive strategy, and visibly support it. Equally important, senior management must ensure that the appropriate pricing analytics, pricing processes, and tools are in place to enable the company to execute their strategy. Without these things, all the talk will just be wasted words.
Like Walmart, the company must identify the right KPIs, (in this case pricing related), and they must set big goals for improvement. Those KPIs need to be more than just top-line growth and margin percentages. They need to point to the drivers of price differentiation, price sensitivity, and price effectiveness. If there is not a pricing organization in place to provide that, the company will have to invest in one. Similarly, if there are not processes and tools in place to determine target prices, floor prices, and pricing authority levels, or to provide guidance, approve exceptions, and review results, then those processes and tools need to be added.
The second HBR article, How Should Your Leaders Behave by Kevin Sharer discussed developing leaders by specifying exactly which behaviors are expected, and having those behaviors displayed by senior management and other role models. “Enterprise leaders must value, at their core, each behavior that they expect others—and themselves—to exhibit and be judged on.” In my pricing example, that means senior management has to act the way they want everyone else to act when making price decisions.
The pricing KPIs must be part of regular business reviews, and senior management needs to discuss them with their teams. Requests for approval of exceptions on deals priced below targets cannot be rubber stamped. Certainly some exceptions should be consciously approved, but some should also be rejected because of the harm they will do to the company’s price positioning and the messages they will send to the market and the sales team. And, when senior management is in front of a customer, they can’t cave at the first sign of resistance. Without being arrogant, management needs to explain to the customer (and the sales person) what value the company brings to the customer and why the price reflects that value.
The last area related to building a better pricing organization and exhibiting the behaviors they want to see from employees is incentives. If the incentive system does not reward employees for behaving in the desired way, or for taking appropriate risks to price to value- change it! We all respond to incentives, and if the incentives don’t reward us for taking some risk, we will avoid those risks.
Dach and Sharer were both right in their respective articles. If you want best practices in pricing, it’s not enough to just tell people. Senior management needs to lead the organization to where it needs to go, assemble the people and processes needed to get there, be role models who act the way the organization needs to act, and reward people for doing the same.
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