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It’s Time to Exercise Your Pricing Muscles

Israel Rodrigo< Israel Rodrigo March 3, 2022

We were all just starting to feel a bit more at ease with the uncertainty of the last two years, gaining a sense we were starting to grasp how to maneuver around rampant inflation, supply chain disruptions, and the ongoing effect of a pandemic.

Now we can’t help but contemplate with profound sadness, disappointment, and a degree of despair how the events around the illegitimate invasion of Ukraine by Russian forces are shaking our global society to its core.  

While all this chaos is still unfolding, it remains to be seen what the impact of how a massive conflict in Eastern Europe and the domino effect of its geopolitical repercussions will have in every single society and economy across the globe. While the cost of human lives will be sadly unfathomable and irreparable, an even already high increase in energy costs, high volatility in the international markets, an even more disrupted supply chain, and the financial impact of sanctions imposed to Russia are deeply concerning. Navigating the immediate consequences will only provide a short-lived respite for businesses if they do not have a broader long-term plan. 

At Vendavo, we have witnessed firsthand how our customers, all of them with an international footprint, are themselves dependent on this intertwined fabric of global dependencies.  For the last couple of years, they have been embracing change, responding and continuously adjusting to effectively manage the disruption of their businesses.  

The Value of Commercial Excellence Solutions 

One thing has become clear: That organizations that had already invested in having a commercial excellence framework and its enabling technology have been better equipped to navigate the current situation.  They have been faster to adjust and pivot their commercial decisions to quickly deliver their value proposition to their customers to maintain their margins, while accomplishing their business vision for their shareholders. Now, more than ever, being able to be agile and flexible on execution, moving fast and reacting to all these negative (inflationary) pressures is paramount for business survival. 

As I was starting to naively write this blog around exercising your pricing muscles, I initially thought that drawing analogies about the discipline required to stay fit, and the different angles to be considered to work on physical and mental improvement, really resonate with the discipline businesses have to display given the current circumstances.

Obviously, last week’s events have been substantiating and endorsing  just how critical and much harder and necessary it will be to develop the business fortitude to overcome current challenges. 

Organizations that had already invested in having a commercial excellence framework and its enabling technology have been better equipped to navigate the current situation.

How can we define business fitness? 

If we decompose what a healthy physique entails, we clearly can agree that it’s going to be a combination of skills and capabilities that are trained and exercised towards a particular goal. We know that elite athletes are made and not necessarily born. It’s through effort, drive, determination and a strong training program geared towards achieving particular results what can maximize the chances of achieving those levels of world class performance 

Regardless of the sport, we could define athletic excellence as having the right combination of agility, strength, speed and mental fortitude to overcome fatigue and endure the physical challenge that leads to achieve a certain goal. If we look at the outcome, success in sports is about having and combining the right attitude and physical aptitude. 

As the year started, I like to think most of us have subscribed to some sort of New Year’s health resolution that hopefully will help us to shape our personal fitness for the better.  Perhaps it’s about participating in a big sports event (like a half-marathon), shedding some of our few extra Covid pounds, or following other personal motivations just to feel re-energized while we relaunch our lives to meet the new challenges of 2022.

We are all very aware of the physical benefits this brings, and I would even venture how strong the correlation is with our happiness, mindfulness, and a positive state of mind, but even with that, we know how challenging it is to stick to it as a routine.  

Business Agility Requires Speed and Range of Motion 

In the context of sports, we can define “agility” as a rapid whole-body movement with change of velocity and direction in response to a stimulus. Concisely put, agility is vital for successful performances in most sports. Athletes must anticipate and react to opponents.  In order to do this, they use cognitive, physical, and technical skills which collectively form agility. 

A business organization should be treated as a whole body, as well. A lot has been written and developed under the umbrella of agility in the business world, from the Agile approach in project management to Operational process optimization with Six Sigma initiatives..  But it has only been in the last decade, with the advancement of CRM technology, that more  attention is being paid to investing in business agility when it comes to improvement and execution of commercial execution processes. 

To be agile, quick and nimble is to have the ability to think, to understand and to act quickly and easily. Having the right processes and solutions in place to explain whether each commercial transaction is profitable or not has been one of the key mantras for pricing excellence for the last 30 years. It’s become painfully obvious that in the current situation, having this insight is less a matter of establishing it as a desirable best practice and more about adopting it as an essential survival skill.  

The same approach applies to fitness in a business setup: If we think about the current inflationary situation, it takes business agility to be able to adapt and a range of motion to execute on your commercial process to ensure you maintain your margins. Inflation is moving fast, and it is puzzling that many organizations do not yet have a good picture of how their business is performing, how their current cost volatility is affecting them. By lacking an accurate view of business profitability, they’re unable to accordingly figure those impacts into their approach to pricing, undermining chances of identifying and capturing value opportunities. 

Having clear visibility on business performance is table stakes. Not Investing in this basic capability is like not investing in proper, targeted training for your sales team or operational staff. Imagine a fleet truck driver who has no idea how to read a map or a navigation app. How confident can you be that he or she will efficiently reach the right destination? 

Resilience is a Continuous Effort That Takes Planning and Practice 

We can agree that whether you are planning to increase your performance in an explosive sport or a long, strenuous effort, abiding to a training program, sticking to it in the adversity, while adapting to the circumstances? That is what is going to ensure that you keep your competitive edge while polishing your skills through continuous improvement. 

“Agile” is a means to an end. But the “means” always needs direction and continuity. The fundamentals still apply: Objectives lead Strategy, and Strategies lead Tactics…in that order. When it comes to agile execution, I think about how to provide and operate within a framework for transparent and dynamic commercial governance, visibility and accountability, defining compliance while identifying, measuring, managing and communicating (and sharing) risk.  

So how can you ensure you can endure the fatigue that comes from sustained effort? By developing business fortitude. 

We talked before about how business execution “in the blind” is still the current modus operandi of many organizations that, to our surprise, are more seduced by eCommerce forces or AI-enabling technology than by investing in basic foundational best practices for pricing governance and commercial excellence. For instance, with the current uncertainty, policy enforcement (and not AI (Artificial Intelligence) alone) has become paramount for ensuring healthy risk mitigation.  

Flexibility and Adaptability are Key 

Flexibility and adaptability are key soft skills required for companies to execute seamlessly within their operating framework. Bringing value discussions to the negotiation table is easier said than done, but having visibility as a provider into what goes on during the deal lifecycle and being factual about value exchange during volatile market conditions? That will elevate the conversation with full transparency, accountability, and coherence going forward.  

The effects the current situation is having on raw materials, logistics, and supply chain management have been felt across the entire value chain. It’s time for agile execution and the ability to be flexible during these challenging times.  

Pricing is the single greatest tool you can have on your side during times like this.

Pricing is the single greatest tool you can have on your side during times like this. Your supply chain needs to be monitored and managed, with changes reflected accordingly in your real-time pricing. Being able to quickly adjust and adapt your offering and understanding what to protect and what to give away ensures you will understand and manage pricing fluctuations.  This protects not only the value you’re responsible for delivering to your shareholders, but the value you provide to your customers, too.  

Success Requires Sustained Outcomes 

Again, only an end-to-end commercial excellence framework can allow you to not only gain visibility into the key factors that drive profitable business growth, but also allows you to execute seamlessly while dealing with the levels of complexity involved in today’s needs. By training your pricing discipline muscles, you will be able to exercise your pricing power both in the short and long run. Higher price is an indication of the higher value you create. Buyer pushback is not necessarily tied to higher price…but lower perceived value

Having a repeatable execution plan, and a well-documented understanding of the forces at play, and an end goal in mind as to what a positive outcome looks like, are as important as being able to measure and benchmark progress. These foundational pillars will provide the flexibility to adjust to market conditions so you can continue delivering value to your customers, elevating the partnership and growing your brand equity when it matters the most.  

Having a pricing framework that provides instant feedback if you are delivering the expected outcomes, such a margin bridge or pricing causality solutions, will help your business  remain agile and stay ahead of the market by managing margins in an evolving, uncertain world.  

Answer the Vital Questions 

In an uncertain environment with negative or limited growth, ensuring commercial policies are accurately designed, consistently enforced, and effectively measured will be the best bet to ensure a company’s bottom line is safely protected with the lowest risk. 

So the next time you are wondering how to assess if your changes in pricing and commercial policies are having the expected outcomes, think about these vital questions: Are you buying business by pricing too low? Are you putting transactional profitability over relationship? Are you focused on short vs long-term goals? Are you able to defend and sustain conversations around the intrinsic value of your products and services with your customers where your prices are continuously increasing?  

Perhaps it’s a time to consider doubling down on energy-driven surcharges to keep up with market conditions while defining your value proposition as purely tied to how your price your products.   

Pricing power gives a business an edge over competitors, as a business with pricing power tends to generate more profits. It doesn’t matter if you define the most and best pricing strategies (i.e., pricing skimming, competitive pricing, value pricing, premium pricing, loss leader pricing , penetration pricing) if you don’t know the effect of how much to charge for your products and services. If you cannot keep it simple, then keep it transparent to keep it profitable.  

With more profits, management may choose to reinvest back in the business and strengthen its position in the market. This means that the business has an opportunity to innovate, gain market share or expand its range of products. Establishing such an advantage should be is one of the most important goals of any company. In today’s world, competitive advantage is essential to business success. Without it, companies will find it difficult to survive.