Pricing is by far the most powerful lever organizations can pull to increase profit. So, why are so many companies still struggling to take pricing to the next level? Mike Slavin, Business Consultant at Vendavo highlights two examples of successful change management and unpacks how pricers can facilitate change with key stakeholder groups.
“The measure of intelligence is the ability to change.”
— Albert Einstein
I think we can all agree that change management is a topic that’s very relevant for pricing professionals. I was doing a little research on the subject recently and came across an article that I just couldn’t pass up. The author’s aim was to highlight some significant examples of successful change management in business.
How General Electric and Netflix Saw Success with Change Management
Most people will agree that Jack Welch wore the Change Agent Undisputed Heavy Weight Champion of the World belt for most of the 80’s and 90’s. He drove immense improvements in profitability at General Electric by shepherding the company’s broad adoption of the Six Sigma mantra. One of the keys to his success was that he was a pioneer and master in the – then undefined – field of change management. He deeply understood that successfully managing organizational transformation was needed to make the Six Sigma mantra work, and he most certainly executed.
Another example of a business that saw success with change management is Netflix. They were able to successfully reinvent their business not once, but twice over a 20-year period. The first change Netflix made in 1999 was to go from a pay-for-use model for DVDs to a subscription model. In 2007, Netflix made a second major change, going from physically handling DVDs through subscription to video streaming services. Another great story. Vastly different from what GE went through, but with a common thread that pricing professionals interested in taking their pricing strategies to the next level should be able to relate to.
Both General Electric and Netflix were successful because their change agents were able to identify the key stakeholder groups and craft an approach that brought them onboard to champion and drive improvement. Who were the key stakeholder groups? For GE, it was the internal organization. All employees were impacted – processes were reengineered from top to bottom. For Netflix, the key stakeholder group was their customers. If either group hadn’t been fully on board, the change wouldn’t have taken place. So what does this have to do with pricing?
Change Management and the Role of Pricing
The word has been out for more than 3 decades that pricing is by far the most powerful profit lever that managers can influence. With state-of-the-art tools available, the reality of today’s pricing world is that there are still a significant number of large enterprises managing price setting and management with Excel and Excel-like systems. In fact, Gartner notes that some 10,000 B2B companies could benefit from pricing solutions, but only 1800 companies have deployed enterprise-grade software.
An even larger majority of companies haven’t adopted a willingness-to-pay based optimized price guidance approach for quoted business. Anyone care to speculate on what percentage of B2B salespeople have unguided freedom when setting prices? We’re well into the 21st century. How is this possible?
Like it or not, the reality is that allowing salespeople to have free reign on pricing is always going to result in money being left on the table. Unless you’re dealing with a small number of items being sold, even an experienced, expert salesperson – who knows their customers, markets, and competition, in the current commercial context – can’t possibly know the price needed to maximize revenue and margin for all their products. The top 20% of items that make up 80% of their business? Maybe. So, after more than three decades, why haven’t they all gotten on board with a better approach?
Think about the proven concept of getting key stakeholder groups all-in to facilitate change. For GE the key stakeholder group was the whole organization. For Netflix it was the customer base.
What key stakeholder group absolutely has to be on board if you want to facilitate a change in how your organization does pricing?
In many organizations, when it comes to pricing, the buck stops with the sales organization. They’re the key stakeholder group. If you aspire to take pricing to the next level, you’ll need to get sales on board. It’s going to take a lot of work – much more than a couple of emails and a PowerPoint slide deck. You’re going to have to show not only how it helps the company be sustainably successful, but also how this helps the salesperson be personally successful – to win more deals, have more satisfied customers, and make more money.
You’re going to have to sell the sellers. Vendavo can help.