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A Costly Price Optimization Mistake

Today we’d like to share a cautionary tale that offers three important lessons for B2B pricing teams.

At this particular distributor, a well-respected pricing manager pushed through a price optimization tool a few years before she retired. The rest of the company didn’t really understand what the tool did, but because they admired this manager, we’ll call her “Jane,” they went along with her suggestions.

But after Jane retired, the person who filled her role came from another discipline and didn’t really understand pricing, let alone the optimization system.

This new guy, we’ll call him “Joe,” analyzed what the optimization system did. He came to the conclusion that it was adjusting base pricing up between 2% and 6% for about 40% of transactions. That didn’t seem like a lot to him, so he shut the system down.

As you have probably already realized, those small adjustments on 40% of the company’s deals were actually having a huge impact on the bottom line. Naturally, margins dropped a lot for the company after Joe shut the optimization system down. And unfortunately, with Jane gone, it took management a really long time to figure out why.

So what’s the moral of the story? We see three:

  1. Get broad support for your initiatives. Even if your employer lets you do whatever you want, you still need to go through the process of getting the rest of the firm on board. You might not be retiring, but you never know when you might need that support. So before you push something through on the strength of your personality, take some time to explain your rationale.
  2. Train your colleagues about pricing early and often. It’s not good enough for the pricing team to understand pricing. You need to train people in other functional areas of the company if you want your ideas to “stick” in the company. And you’ll need to repeat that training on a regular basis. And in case we haven’t said it enough yet, you’ll need to repeat your training efforts over and over.
  3. Do some succession planning. If you know that you are leaving soon, train your replacement. And make sure everyone knows that the person you leave behind is the best person to fill your shoes. And if you aren’t planning to leave, you should still start thinking about who is going to take over when you leave. You never know what twists and turns life might take.

We find that real-life stories like these are some of the best educational tools, so we put together a whole webinar that focuses on them. Check out Tales from the Trenches in B2B Pricing to hear more details from this story, as well as a lot of others. It’s chock full of life lessons you can put into practice right away.

And if you’re curious about price optimization and the tools mentioned in this anecdote, watch All About Price Optimization. It addition to providing a good overview of the fundamentals, it also delves into some common myths and misconceptions.

Finally, if you are engaged in succession planning or just trying to build your team, we recommend the webinar on How to Hire Great Pricing People. It details the seven most important attributes you should be looking for, as well as giving a lot of other advice for choosing the right candidate.

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