March 13, 2014
We have to learn to crawl before we can walk, let alone run. If you want to be a professional sports player, it takes years of investing in your skills and equipment and it takes coaches, sponsors and strong motivation. It’s the same if your company aspires to be world class in pricing. There is no silver bullet. It takes hard work, dedication, passion, investment and years to reach your full profit generating potential. But here’s the good news…actually great news. You can generate huge profits as you advance through the lifecycle stages of pricing. Whether you are going from essentially no real pricing capability to a basic level or you are going from a strong pricing capability towards world class, your return on investment should be among the highest return programs your company embraces.
Do you know where your company is along the pricing lifecycle? Let’s assume 5 levels where level 1 can be thought of as a Pee Wee football league. There is no strategy, plan or skill involved. Contrast that with level 5; a professional football team where strategy, plays and skills are world class.
Would you be surprised to learn that studies have shown that the majority of B2B companies (70% – 90% depending on region) are only in the lowest two pricing lifecycle stages. Furthermore, most companies over rate themselves when assessing their pricing maturity and struggle to advance beyond level 2.
As you progress through pricing lifecycle stages, you will need to consider four areas:
1. Strategy and Culture
2. Pricing Resources
3. Business, Marketing and Sales Pricing Competency
4. Process and Systems
And, you will need to think of these four areas relative to the three fundamental pricing elements: transactional, value-based and strategic pricing. Just as a new product runs through a lifecycle of embryonic, to emerging, to mature, your company will also travel along this same path with all four of the areas listed above and the three fundamental elements of pricing. Each of these areas are likely to begin and mature along very different time-lines.
I have not mentioned the dreaded decline stage that products eventually go through. Hopefully, your pricing journey will avoid this stage. But be weary, if you are not actively progressing in your pricing competency, you run the risk of falling backwards and/or of management declaring pre-mature victory and moving on to the next hot topic.
As I led DuPont’s Corporate pricing across over 50 businesses, patterns emerged that made it clear why some businesses where able to advance and mature quickly while other businesses stagnated.
If you would like to learn more about how best to accelerate your pricing lifecycle journey and avoid the typical stagnation at level 2, join me at the Vendavo Profit Summit March 25-27 where I will discuss the DuPont journey and host a lifecycle panel discussion with Emerson and 3M.