According to Profitwell, as little as a 1% improvement in price optimization can result in an average boost of 11.1% in profits. Yet most B2B organizations struggle to find their pricing sweet spot — and the majority are at a loss for how to approach fixing it. This ever-rapidly changing marketplace does not simplify matters either.
How are most sophisticated businesses still struggling with best pricing their solutions? Where are they getting it wrong?
Lemke: First, the good news: Given the prominent position inflation has taken in the world’s psyche, “getting” near-term price for most organizations is easier than ever. But, no doubt, these are trying times.
Beyond inflation, which in some cases may be moderating, we have supply chain issues driven by geopolitical disruption, rapidly shifting demand patterns driven by things like climate change and the accelerating pace of innovation, and whatever surprise awaits us around the corner. Even the most sophisticated businesses with dedicated pricing organizations are struggling to react, adapt and then become proactive in helping companies create and capture value.
Where I believe companies continue to get it wrong is by not putting pricing in a more central role for monetization and value realization. Instead most organizations keep this relegated to an analysis or deal-approval role. The potential of this team — which is data-savvy, understands finance/sales/marketing, is adept at collaborating across functions and levels, and must be customer-centric — is huge. These professionals are in a fantastic position to orchestrate activities across the key commercial functions to ensure the right value propositions are aligned to the right segments — and that sales and marketing muscle is applied appropriately to communicate and ultimately sell the value of the company’s solutions.
Kevin, as you see it, pricing and innovation share striking similarities. Can you share what those are and how this can help organizations approach pricing?
Lemke: Both pricing and innovation represent the unknown and a state of uncertainty. For some folks, this can cause unease and discomfort — encouraging functions to take the lead in a siloed manner. But for other people, it brings out their entrepreneurial nature in the sense that they are always looking for ways to add and deliver more value. This is true for solutions, as well as how you can price them.
Executives need to be in an innovative mindset when trying to solve pricing issues. There must be a culture of risk-taking as you would in innovating products to find the best option for your buyer. For example, the problem may be high discounting or low margins — but there are right and wrong ways to go about moving the needle. The solution could be as simple of a fix as discount guidance, while there may be a better more complex set of solutions that include refining the value propositions. Leadership needs to face these issues boldly and with a forward-looking approach to uncover what is best for your business, your customer and the current market.
Your organization supports many startups. In this, you have made the observation that pricing is always in startup mode. Can you share more why this is and how this applies to a pricing strategy?
Lemke: There are three things that stick out most to me. First, your leaders need to find the product and market fit within your organization. Second, the landscape is constantly changing, and organizations need to be agile and flexible enough to innovate pricing to keep serving buyers in those shifting landscapes. Third and last, your leadership must be willing to invest in this capability. Effectively pricing a solution is just that: a skillset. In order to create large value, you need your best and most-experienced minds on this.
How can B2B leadership approach pricing strategy effectively? What kind of team structure delivers the best results?
Lemke: As mentioned above, I believe too many organizations treat pricing as a purely analytical function, designed to crunch numbers and make recommendations based on the given set of solutions. That function is necessary but not enough, and it undersells what the pricing organization can contribute to the company.
Pricing power should be a top priority, especially in these turbulent times. Pricing power implies you have the opportunity, better than your competition, to effectively use the pricing lever to manage the growth of the company while delivering bottom-line results.
For an organization to exercise pricing power requires a fully integrated set of go-to-market activities that ensures you:
- Have the right solutions for the right markets
- Are communicating to the market effectively
- Are fully arming your sales organization to sell the value
- Lead with rock-solid order-to-cash processes
The team that can influence and manage that entire set of activities with an eye on profitable growth is pricing. So, I recommend SVP or EVP leadership of the pricing function to report to the CEO, or at least, to the CFO. And then provide a broad monetization mandate to the team, setting them up to work hand-in-hand finance, sales, marketing and operations to drive profitable growth for the company.
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