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These 4 Things Stand in Pricing’s Way

At some time or other, you’ve undoubtedly heard someone say, “It’s not what you know, it’s who you know.”

Usually, this sentence comes up when people are talking about getting hired or promoted. We’ve all seen individuals who seem to have attained their current position for no better reason than the fact that they married the boss’s daughter or someone in their family plays golf with the CEO.

However, “who you know” can also be critically important when it comes to being successful in your day-to-day job as a pricing practitioner.

We’d all like to think that if we just keep our heads down and focus on our work, we’ll accomplish our goals. But the truth is that we all need to interact with other people and other groups within the company in order to do a good job.

When it comes to pricing, four key groups play a huge role in the success or failure of your efforts: sales, marketing, product management, and finance. If you don’t know anyone from these groups or if you don’t really understand what they do, you could be setting yourself up for failure.

Here’s why:

Sales: In B2B, no other group has as much impact on pricing as the inside and outside sales teams. These are the people who are giving your prices to customers and negotiating the final deals. They’re also the ones who do the most work in explaining why your prices are fair, what we call your “differential value messaging.”

If the sales team isn’t on board with your pricing strategy, they might decide to completely ignore your pricing recommendations when they get out in the field. And unless you have a personal relationship with some of them or another way to influence them, they’ll probably keep right on doing exactly what they want to do with little regard to your opinion.

Marketing: The marcom group is probably the second most important to the pricing team because they decide what messages about your products go out into the marketplace. If, for example, you’ve decided that your product has enough distinguishing features to command a premium price, marketing can completely undercut that effort with advertising materials that portray the product as a commodity or ads that ignore the features and benefits that are most important to customers. If you want your pricing to be effective in the marketplace, you need to make sure that the prices you want to charge and the messages marketing is crafting align with each other.

Product Management: The role of product management will vary a little depending on your industry, but in general, these are the people who decide what you are going to manufacture or source and sell. Ideally, they would make these decisions based on sound market analysis, but in the real world, product management teams often don’t understand the role that research should play in their decision-making process. Pricing teams that have poor product management teams can find themselves in the position of having to put prices on products that their target markets don’t really want. Or they might find that the products they are selling have such a high cost basis that the organization can’t make any money off them at the prices the market will bear.

In short, if your products suck, it doesn’t really matter how good your prices are.

Accounting: Often pricing teams think of accounting and finance as groups that come in after the fact. They’re the bean counters that figure out what happened and whether or not the company was profitable as a result.

However, accounting and finance personnel frequently have a lot of input into decisions about cost basis, allocation, internal transfer pricing, and related issues that can have a big impact on pricing. Of course, it would be ideal if you could set prices based simply on market forces, but practically speaking, the accounting teams strongly influence how your pricing activities will be viewed within the company.

So what can you do about these four groups if one (or more) of them are standing in your way?

We strongly recommend that pricing teams begin learning as much as they can about these other disciplines and nurturing relationships with people in these departments. A good way to get started is with the webinar Breaking Out of the Pricing Box. It examines each of these four groups in more detail and offers specific tips for encouraging these other groups to become a help rather than a hindrance to good pricing.

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