Pricing done right can have a huge impact on a company's profitability. This is, of course, a huge understatement. In the previous two parts of this series, Getting Pricing Right: The Enemy Within -- 5 Ways Retailers Can Look Inside Themselves To Get Pricing And Profit Right, and 5 Ways Retailers Sabotage Their Own Pricing And Profit -- we talked about the positive implications of integrating the capabilities of your organization and making them work together. And effective pricing intelligence and profitability management depends on coordinated efforts of the following elements within your company: Pricing Strategy, Price Analytics And Optimization, Pricing Execution, Pricing Technology, and Tax And Regulatory considerations. (Deloitte, in Getting Pricing Right; and The Problem With Pricing, It's You).
We presented the impressive statistic that a one percent price increase can boost a company's operating profits by 11.1 percent, more than the profitability increase for any other acts to reduce costs. The suggestion was for retailers to treat pricing as an integral function rather than as a series of individual project-based efforts.
So if coordinating multiple pricing functions within your company can deliver such impressive statistics, why don't more companies do it?
1. Executives still don't recognize the need to improve, coordinate, and integrate these functions. With double digit growth in online retail, this is becoming less and less of an issue as there's more and more transparency, more and more information and discussion in the trade media, more competition, and more tools available to help overcome these problems.
2. A shortage of time or money. This is also becoming a non-issue fast, as companies realize the absolute importance of keeping up, not only with themselves, but with the competition, and statistics showing that Consumers Will Spend $327 Billion Online in 2016 in the report: US Online Retail Forecast, 2011 To 2016 by Forrester Research.
3. Executives may be wary of expanding the scope of a project. That argument is also quickly going the way of the dodo, with greater and greater transparency, dramatic increase in mobile technology usage; and innovative online sales, to name a few.
4. Some pricing functions sit in unexpected parts of the organization. The point of this blog series is to talk about the value of integrating these functions and making them work together for the total benefit of the business.
5. Management doesn't know all of their options. Automated analytics and optimization tools are in great ascendancy. There's never been a better time to utilize tools and data to speed information, analysis, competitive intelligence, and decision-making. Those who don't are quickly being left in the dust.
So if the role of an integrated pricing function is to help a company take a more efficient and effective strategic view of pricing, and smoothly carry out its day-to-day pricing activities, here's what to do:
1. Establish a formal pricing organization. Most importantly, the pricing organization should bring an integrated perspective to the company's pricing efforts, mobilizing the right pricing competencies to help increase profits while steering clear of unintended consequences.
2. Set pricing strategy. Define and execute consistent pricing processes. This organization needs to clearly own all of the company's pricing strategy and processes, no matter where individual pricing activities actually take place.
3. Perform predictive analysis. The organization should include people who perform predictive analyses to understand customer buying patterns, analyze levels of demand at various price points, investigate which customer segments are buying what products and features, and determine how to price for those products and features. Again, automated analytics and optimization tools are available to aid with these tasks.
4. Supervise the flow of price information through the company. Make sure that everyone is on the same page regarding pricing strategy, pricing policy, goals, and the ways to get there.
5. Measure and report on price performance. The secret is to recognize how the interplay among these competencies can help improve the outcome of a company's pricing efforts. Use the pricing and analysis tools, not only for immediate pricing information and decisions, but to look at long-range consequences and effects.
For greater efficiency, smoothness of decision-making, and study of effects, retailers should set up an organization within, that defines and executes consistent pricing, supervises the flow of price information through the company, measures and reports on price performance, and sets pricing strategy. Companies that integrate key pricing competencies into a cohesive pricing and profitability management program can realize gains far beyond current capabilities of what can be achieved in maximizing pricing and increasing profit for better bottom lines.
I'd like to hear what you think about setting up an integrated pricing organization within a business? Thanks. Gilon