October 15, 2012
We had an anniversary recently for the 999 Emergency number which was introduced in the UK 75 years ago (other countries such as the US were much later). In the UK, when the number is dialled, the operator always responds “Fire, Police, or Ambulance: Which do you require?”
A Pricing Department can often be seen as either Fire, Police or Ambulance. Let me explain.
This is a completely reactive Pricing Organisation which is just involved in putting out fires. This might tike the form of responding to an urgent call to put through a price rise mid-year to respond to a competitive threat or cost change (such as a fuel surcharge).
Putting out the fire is often just a case of grabbing the simplest algorithm, which may be as basic as multiplying columns in spreadsheets by fixed amounts. This approach is highly tactical, and often leads to contradictory prices between segments.
If you seem to be spending all your time putting out fires then its time to stop and consider your Pricing Strategy. Real world Fire Departments encourage the use of fire drills to get every ready so that mistakes can be corrected. For a pricing team, this means you should review systems for flexibility: just how long would it take to introduce a new surcharge into your current pricing environment, set up policies for it and track its effects? Have a fire drill and see.
The Pricing Team is seen by the commercial team as merely policing their actions. It can be a case of telling sales teams why they can’t sell at a certain price. Being the enforcement agency is no fun.
If you and your pricing teams that seem to be stuck policing deals there are a couple of things you can do:
Review your approval policies to see if you are spending your time on the deals that make a difference
Work with sales teams on other ways to improve profitability rather than just nailing them on price. For example, via improved the mix, recovery of services via surcharges, or improved payment terms.
In the UK, the Labour Party had a slogan, “tough on crime, tough on the causes of crime.” For a pricing team, this could read, “tough on discounting, tough on the causes of discounting.”
Just like the real world ambulance, pricers often get involved in scraping deals off the road, applying resuscitation techniques and setting them in the road to recovery. For a Pricing Team, or Deal Desk this is often “re-engineering” a deal to make it more profitable. However, as in the real world, Casualty (ER) Departments are much more expensive than primary care services.
In order to reduce the pricing teams cost of “health care” consider what would be the equivalent of setting up local health clinics to ease the strain on the ER. Perhaps pricing clinics could be run in the field to teach sales people about pricing and profit.
So, although it might be exciting to be a Pricing “First Responder”, we could all do with fewer pricing emergencies.
– James Marland