Read Time: 5 minutes

Headquarters Pricing – 3 Steps Towards Pricing Integration

Darius Fekete< Darius Fekete March 22, 2018

M&A activity poses an integration challenge that also affects pricing departments. Acquired companies most often have different pricing practices and capabilities and even operate on different ERP systems.

Building centralized commercial excellence capabilities that capture customer insight, optimize value positioning and provide adequate sales guidance can add significant pricing power to the whole organization. Standardizing pricing logic through a comprehensive price waterfall alone can result in 0.5-1.0 % improvement in profitability.

While the possibilities of integrated, optimized pricing are powerful, designing a target state operating model can be a lengthy process on its own, let alone implementing such a model. New strategies, structures, and organizational resistance always create additional complexity. Thus, pricing often gets secondary attention in the integration cycle, usually, after cost-cutting measures have failed to deliver sufficient synergies.

A fresh approach to pricing scope definition at the headquarters level will allow for earlier value realization. Rather than defining an immense scope, divide your program into smaller, more manageable projects. Identify the common denominators of pricing integration efforts and take only a few steps at a time with a limited number of directly impacted stakeholders. The overall goal is to find a method that is faster, cheaper and results in less hassle with your integration management office.

The result of this approach could be to integrate the utmost left-hand side of your pricing waterfall first. Base and reference price setting methods can be harmonized as they have rather low differentiation requirements in the various parts of your organization. Also, by focusing only on a few price points at a time, complexity is contained, less effort is spent on alignment discussions, and fewer resources are required to deliver the transformation.

Follow these 3 steps when integrating your pricing:

  1. Establish HQ controls – Regain full oversight over the left-hand side your pricing waterfall by setting up an overarching digital solution in your HQ. Most pricing processes are differentiated at further stages; the left-hand side is the easiest to harmonize. A clear quick-win, versus a full-blown, end-to-end approach.
  2. Standardize data input – Data standardization across different organizational entities will be required to provide input for HQ pricing. Products need to be classified into similar categories to ensure manageability within the same pricing waterfall. Use this opportunity to identify pricing leakages, but also to signal change to your regions and business areas by engaging them in the required effort. This way you will get buy-in and establish a common pricing language across the organization.
  3. Create a platform for roll-out – Treat the project as a first phase. Use your wider team’s momentum to define further steps in your engagement. Also, communicate success to boost confidence, justify the business case for expansion and shorten project approval times.

Pricing integration does not mean that you have to do lengthy planning. By taking small steps, you can increase the chances of project success and generate buy-in for a broader vision. Overall, an HQ focused pricing approach enables organizations to take those first steps towards creating global alignment to execute a commercial excellence strategy.

For more information on how to win the race to value in the aftermarket industry, visit our resource library.