Pricing for Success: The Holistic Approach to Achieving Pricing Excellence

Part I / III of our series "From Chaos to Clarity: Transforming Your Business with Pricing Software" by Dr. Marcus F. Demmelmair and Kilian L. Fleisch

In light of high volatility across markets, the recent surge in raw material costs and ongoing inflation, organizations across all verticals are realizing the importance of robust pricing power and capabilities to support their growth strategies. To expedite pricing decisions, organizations are leveraging technology, such as advanced pricing software and tools, which offer sophisticated data analysis capabilities to identify pricing trends and patterns, enabling them to make informed, data-driven decisions and execute those quickly. It's important to acknowledge that while pricing software is a valuable facilitator, it does not offer a one-size-fits-all solution for all pricing challenges. Rather, it serves as a tool to enhance and reshape the pricing function.

In response to the challenges faced by pricing organizations today, we have developed a comprehensive pricing excellence framework. This framework enables us to address these challenges holistically, with pricing software playing a significant role as a relevant component.

The first dimension is the price strategy, this element covers all the questions around segmentation of customers and products to determine the correct positioning. It also involves the selection of a suitable revenue model which is highly dependent on the type of product and service which you are selling to ensure sustained revenues for your company. Additionally, a clear target operating model with efficient processes, a clearly defined organization and necessary skills of your pricing team to allow your company to well-informed decisions on your price strategy.

The second dimension covers to so called price setting. Once you have a clear strategy for your pricing, you need to determine the price logic and set the right price points for your product and services. An important factor to set the right prices is the element of behavioral pricing – which is not just relevant for B2C but also B2B.

The third dimension covers the price realization. The best list-price or gross-price can be completely diluted, if price enforcement is not managed properly and your realized price (and therefore the price-perception of the customers) deviates significantly from your price strategy. In many of our pricing assessments, we see a significant deviation of the realized prices from the strategic price positioning, harming not only your brand equity but also destroying the well-thought price logic of your company by wrongly incentivized sales staff. Therefore, you need to ensure your terms & conditions, rebate structures and quotes are in line with your overall price strategy – this is mainly enabled by proper training in terms of negotiation but also an internal and external incentive-structure which favors your desired price realization.

Last but not least, there is the dimension of price steering which provides the required transparency on your pricing waterfall. The major elements are the price controlling, the international transfer pricing set-up as well as pricing KPIs and reports to support your pricing.

All these dimensions can be supported by the so-called pricing enables like advanced pricing analytics and pricing software. As conclusion, software and analytical capabilities are just one of the dimensions which need to be addressed to reach pricing excellence and should never be addressed independently from the other four dimensions.