If we think of commercial excellence as a living and breathing organism of programs and practices designed to maximize the flow of profitable revenue, then pricing emerges as the pulse or heartbeat of that organism.
Yet, pricing optimization is lacking for many players in the manufacturing industry, making commercial excellence seem like a distant dream. Only those who have uncovered the importance of consistently improving pricing are experiencing commercial success as an everyday reality.
The traditional pricing function, in and of itself, has a strong impact on short-term results. Companies that take a siloed approach to pricing and commercial excellence miss out on developing sustainable margins. However, with pricing integrated into a broader design for commercial excellence, short-term gains can be transformed into sustainable returns.
Achieving such a level of profitability and sustainability is essential in today’s business landscape which continues to reshape itself as it recovers from the impact of a global pandemic and other macro-environmental changes that have been the source of increased market volatility for the past two years.
During that time, it became apparent that a healthy commercial agenda involves thoughtful pricing optimization rather than pricing compromises. In the midst of the global crisis, many companies pursued long-term gains by hastily slashing prices and making decisions that sacrificed profitability and prevented them from reaching their commercial targets.
Now, with persistent inflation and rapidly rising costs adding to the conundrum, many businesses are realizing that the best way to move forward is to overhaul pricing and understand the role it plays within the commercial excellence framework.
A broader perspective on pricing
The pricing challenges companies are currently facing stem from viewing pricing as an isolated function. In reality, the function has become part of a broader framework for commercial excellence which is driven by the need for superior customer experiences that yield maximum results.
As Vendavo puts it, thinking of pricing as part of a commercial excellence framework can help businesses answer fundamental questions about how they serve their customers, including:
- How easy is it to do business with your customers?
- How responsive are they to your bids?
- How effective is your offering in helping customers deliver their products or services?
- How well do you know your customers?
- Which customers are similar and how are they different?
Knowing the answers to these important questions can help companies position themselves as relevant and ubiquitous to customer success. Understanding the needs and preferences of customers as they pertain to your products and services is the key to creating a commercial excellence program that not only takes the pricing function to the next level but the customer experience as well.
For example, sales teams that base their decision-making on traditional pricing are tempted to slash costs or offer discounts and promotions causing profits to leak out. But as part of a commercial excellence program, sales reps can base their decisions and strategies on real conversations with customers that will often show them that clients would be willing to pay more than expected for a product or service if it delivers added value.
Adopting this mindset and understanding how pricing and commercial excellence are interconnected can help organizations structure their practices better, from strategy to execution.
Rethinking strategy and execution
Creating a structured way of thinking around commercial excellence puts things into perspective, shining a light on otherwise overlooked requirements for targeted investments in new capabilities and different approaches, such as the pocket-price-waterfall method, for identifying and reducing profit leakages at every price level.
The latter is an essential first step in any commercial excellence program as reducing leakage can rapidly produce at least minimum funds for investments into longer-term improvements, such as building a team dedicated to commercial excellence or assigning capability-building responsibilities to line leaders.
Once the mindset and initial steps are established, creating a solid strategy for commercial excellence that integrates the pricing function becomes easier to accomplish. A good place to start is administration and deciding who owns pricing. Some companies may need to build a dedicated commercial excellence team to assess market power and experts to constantly analyze and update the execution platform.
Having access to the talent and tools needed to determine the best business model and value-based offerings for your company is not always easy but it is a vital endeavor. In addition to administration, the same team can manage segmentation by analyzing transaction history, identifying similarities and differences, and dividing customers into groups that can be targeted better.
Drawing from a new business model and segmentation data, companies can come up with a bottom-up pricing strategy that informs the sales process and equips sales reps with the tools and knowledge they need to close better deals faster. In essence, this means seamlessly connecting pricing strategies to sales execution and integrating pricing analytics and optimization into everyday business processes.
For the B2B industry, that is the ideal way to make data-driven decisions and enable faster approvals considering that pricing decisions have a higher frequency and impact than in other industries.
Enabling commercial excellence
The shift toward commercial excellence is enabled by pricing agility, the ability to adjust strategies to market changes, mine and manage data, and of course, digitally transform revenue management, pricing, commerce, and quote-to-cash processes. Technology such as AI and machine learning play a key role in that regard, transforming price optimization into a reliable, fast, and accurate process that minimizes human errors and eliminates the cumbersome tasks of constantly handling spreadsheets.
Alongside technology, companies need the know-how to unlock the power of commercial excellence and use it as one of their most effective levers for consistently delivering higher returns and growing profitability.
For a clear understanding of what it takes to harness the power of commercial excellence, join the Commercial Excellence Panel on our Virtual Business Platform on Thursday, 19 May 2022, from 10:00 to 10:45 CET. Senior Pricing Experts at Duni Group, Borealis AG, and Goodyear will discuss how moving toward commercial excellence benefits your customers, consolidates effective cross-departmental collaboration, and takes your company’s transformation journey to new heights.