September 19, 2019
In my Ph.D. work back in 2009 and 2010, I learned about the concept of wicked problems. Wikipedia defines it as “a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. It refers to an idea or problem that cannot be fixed, where there is no single solution to the problem”. I have been involved in pricing transformation for ten years now and the lack of leadership support for pricing is a wicked problem.
In 2011, I conducted a survey of 557 CEOs and found that, when these CEOs were asked to allocate 100 points of attention between growth programs, cost cutting programs, and pricing programs, pricing only received 16% of the points. Top leaders are obsessed with cost management! More recently, Simon-Kucher’s 2019 Pricing Power survey revealed that only twelve percent of surveyed executives consider pricing the biggest lever of profitability.
Typical C-Suite Pricing Behaviors
The reality is that it is hard to get the C-suite engaged and committed to pricing transformations. In my experience, the typical C-suite behaviors with regards to pricing transformations often include:
- Delegate the drive and support to a VP or a Director
- Passivity during large contract negotiation or very large investments discussions
- Under-estimates the amount of change leadership that is required to conduct deep pricing transformations
- Cuts budget of the pricing transformation when business conditions worsen (travel costs, training costs, change management budgets)
- Accepts the fact that pricing complexity can be managed without proper tools and systems and generally unwilling to invest in pricing software to support business transformation
- Puts money on the table to hire consultants when needed instead of wasting time doing things internally without proper skills
- Lacks political will to adopt a top-down approach to address upper leadership resistors
- Lacks courage to tackle the hard subjects of the transformation including: potential business disruption, compensation systems, holding leadership accountable for non-performance, how to fix some of the unnecessary complexity slowing down the business
- Lacks courage to discuss pricing during board meetings, analyst calls, and in the annual reports
These reasons are why I call pricing transformation a wicked problem. None of this is new. There are many books, consulting reports, papers, and successful transformation stories that show the positive impact of leadership support during a pricing transformation. Yet, top executives are not committed, interested, or willing to take political risks.
A recent study I conducted of the Global Fortune 500 firms shows that only 22% of these very large firms have a dedicated pricing team with at least 20 pricing professionals led by a VP or Director. That means that 78% of them do not manage pricing or invest enough in pricing. What happened to the 4Ps of marketing? Who manages pricing in the end? Bottom line, how can a CEO of a top 100 global fortune firm accept that pricing not be managed professionally? Does that mean firms do not have proper enterprise pricing software?
CEO’s and the C-suite have the fiduciary responsibility to manage the profitability and return on assets of their organizations. They decide how this is done and allocate resources accordingly. They should evaluate all options to improve EBIT and cash flow. Cost-cutting is one option, but it cannot be the unique focus along with M&A. It has been published a thousand times that 1% in price increase yields 11% in EBIT, all other things staying equal. In fact, there is no other corporate program that can deliver that kind of return to the bottom line. So how do we get the C-suite convinced to finally embrace the 4Ps of marketing, to formally manage pricing with attention and intention, and to champion pricing transformations?
Do we publish one more paper in Harvard Business Review? Do we have a coordinated program at the pricing profession level? During my ten years as a thought leader, I have worked to publish, to speak in C-suites, to author practitioners and academic papers about the impact of pricing, and to contribute to places where CEO’s are engaged. Everything helps to raise awareness and interest and I truly enjoy reading about the success of firms I have collaborated with. But at this pace, it will take another 100 years to get pricing on the map for real. We need a collective blitz with hundreds of thought leaders infiltrating C-suites and evangelizing executives.
When I graduated with my Ph.D. in 2013 and I wrote the Pricing Journey book. I thought I had cracked the wicked problem. I was a fool. The problem is still wicked! The only real solution is for everyone to be bold and join the pricing revolution.
For more information on how to encourage C-suite involvement in the pricing discipline, download the whitepaper, 5 Things Every CEO and CFO Must Know About Pricing.