Price is widely known as the most powerful profit lever so it is no surprise that executives frequently commit to improving their firms’ pricing outcomes as the means to delivering profitable growth. However, often in practice, not all of a projected price rise is actually realised by sales teams, in spite of these seemingly clear commitments from the top. This is particularly true in B2B organisations where there is more discretion to discount on the part of sales staff.
Some firms are consistently more successful than others though in driving price rises though – these are the organisations that are rigorous in their approach and understand how transparency, internal benchmarking and appropriate incentivisation of sales staff help them to realise their objectives.
According to the Simon–Kucher & Partners’ Global Pricing Study just one third of industrial firms are able to achieve in excess of 75 per cent of their intended price rise and companies across this peer group capture 59 per cent of their stated price rise aspirations on average. The conclusion therefore is that most companies can do more to bridge the gap between the targeted and realised price rises, which requires better price execution.
It is incumbent upon management therefore to allocate appropriate resources to process design, pricing policies and escalation schemes to guide sales force behaviour, with the promise of improved profitability at stake.
There are three key steps to deliver improvement in pricing execution, which in turn will lead to improved profit outcomes:
1. Achieve transparency
‘De-averaging’ provides powerful insight into the spread of pricing outcomes that are currently being achieved. Whereas monitoring average prices and reporting them as Key Performance Indicators is very common, it masks the detail where profit opportunity lies. More often than not there will be a group of customers receiving very low prices who have been resistant to increases. Clearly identifying them and putting them on a ‘hunting list’ clearly focuses minds that these are the clients who are holding the average down and must be improved.
2. Learn from the best, apply to the rest
Some salespeople consistently achieve better pricing outcomes than their peers. By understanding and exploiting the factors that explain their success, general outcomes can be improved.
This can be expressed as a ‘learn from the best, apply to the rest’ approach to coach and develop a sales team. The process identifies leading profit performers, their techniques and behaviours. Coupled with market expertise and industry best practice, training courses can be created to facilitate better pricing and profit outcomes. It is common for companies to devise value-selling training courses comprising theory, practical application, knowledge sharing and interactive exercises.
3. Align sales incentive schemes with corporate goals
Well-designed incentive schemes have a positive impact on pricing outcomes realised and hence corporate profitability provided they are appropriately aligned with a company’s overall strategy. Effective incentives require a focus on profitability rather than revenue to be effective, but this is not always the approach taken in certain companies.
In Simon-Kucher’s global industrials strategy review of the Global Pricing Study, two thirds of executive managers cited that their pricing strategy was margin driven. In contrast, just 15 percent of sales personnel surveyed in the separate sales excellence, ‘Kienbaum Incentive Study’ responded that margin was the most important contributing factor in their incentive scheme. This gap in expectations and reality between executives and sales people results is stark.
A commitment to effective price execution pays dividends – the Simon-Kucher and Partners Global Pricing Study demonstrates that companies with high pricing power achieve higher profits and outperform their competitors. Companies with low pricing power annually forego 30 per cent of their potential profits.
Key Lessons to achieve excellence in price execution
• Achieve transparency on pricing outcomes at a transactional level
• Learn from your best sales performers and apply the best of their techniques across the entire team
• Align your sales incentive scheme with corporate goals, measure and then reward desirable behaviour
Excellence in pricing execution is fundamental to realising target price rises and should be matter of priority for managers. By remembering the three key steps, sales organisations will be more capable of delivering the pricing commitments of their leaders.
