We frequently get questions from B2B companies about how to structure their pricing groups. Sometimes these questions come from businesses that are setting up a pricing group for the first time; other times, they come from companies that are unsatisfied with their current arrangement.
Often these questions center around how to draw the org chart. Where should pricing fit in with the other groups in the company? To whom should they report? How are the most successful B2B pricing teams structured?
We wish we had an easy answer to these questions. But in this case, the best answer really is, “it depends.”
You see, we’ve seen a lot of different arrangements work out. The one that will be best for you is going to depend on the specific circumstances, dynamics, personalities, and culture within your firm.
What we can tell you is that there are four very common reporting arrangements, and each has its strengths and weaknesses.
1. Pricing reports to the CEO or general manager.
In some cases, pricing answers directly to the person in charge of profit and loss for a given business unit. That might be the CEO. It might be a GM. It might be a VP of some kind. The title isn’t important; what’s important is that pricing is answerable to the “big boss.”
The advantage of this arrangement is that pricing gets a lot of power and prestige. You can focus on the broad perspective instead of being beholden to the narrower concerns of a particular group in the company. It also sends the rest of the company a message that pricing is important, and they should listen to what you have to say.
The disadvantage is that you won’t have access to the same kind of departmental resources and direct contact with the markets that you might have if you were in, say, the sales department. You might even encounter some internal resentment. And pricing teams in this situation are often held accountable for achieving very dramatic—and sometimes unachievable—results.
2. Pricing reports to marketing. We should clarify that’s it’s unusual for pricing to report to a marketing/communications group but much more common to report to a product marketing group or perhaps a product group that performs a similar function.
The upside to this structure is that pricing might be able to influence many of the early strategic decisions about the product and the go-to-market strategy. Because so many different factors influence the prices that a company is ultimately able to charge, this early involvement can be hugely beneficial.
On the downside, marketing and product folks have very different mindsets from pricing professionals, and they might not understand your concerns. In addition, marketing groups at many B2B companies don’t have as much internal political power as the sales group, and they frequently find themselves overruled.
3. Pricing reports to sales. This configuration gives pricing direct access to the market, direct access to the people on the front lines who are executing the pricing plans, and direct access to what is usually a seat of power in the organization.
However, as well all know, sales is usually primarily concerned with top line revenue numbers. They just aren’t built to focus on margins and the bottom line. And although this is changing (very slowly), most B2B sales departments aren’t all that analytical and data-driven, the way pricing needs to be. If (when) disagreements arise between pricing and a sales rep, the sales manager will likely side with the rep most of the time.
4. Pricing reports to finance. In some ways, this is the opposite of reporting to sales, because finance folks are incredibly focused on data, analytics, and the bottom line. They also usually have the CEO’s ear.
On the other hand, heads of finance don’t often understand all the other disciplines—like sales, marketing, and product design—that influence pricing. They’re focused on costs more than customers, and they’re used to looking back at what happened in the past rather than looking attempting to influence the future.
As you can see, there really isn’t a “silver bullet” structure that checks all the boxes. And in addition to these four common arrangements, there’s one more. A growing number of B2B firms are combining sales and marketing into one team, and in some cases, pricing reports to the person who heads up that combined function. That results in the pros and cons associated with both reporting to sales and reporting to marketing.
As we mentioned, we’ve seen “best of the best” pricing teams with all four (well, actually, five) of these reporting structures. And this is only one of the critical decisions organizations need to make about how to organize their pricing teams.
For more advice about the different options and how to choose the one that will be the best fit for your organization, watch the full webinar on How to Structure Pricing Functions. Reorganization isn’t something that most B2B firms do lightly or often. So the decisions you make today about how to organize your pricing team will likely have ramifications for years to come. This webinar can help you make sure you get it right.