Likewise, our research shows that, as the pricing function is expanding further, companies are prioritizing collaboration between sales, marketing, finance, and other relevant departments within their organization. Some are even working on building a dedicated pricing team or council that can centralize ownership and develop the agility needed to respond to market dynamics in a time-efficient and data-driven manner.
The price of organizational misalignment
Establishing a framework to create and commercialize value is the key to translating value into customer benefits and, ultimately, profit. Doing so will help align everyone who owns pricing within a given organization, from the price manager to the sales manager.
However, without organizational alignment around the pricing function, the company may suffer the following consequences:
- Incoherent and inconsistent approaches in determining what each product or customer should be charged, resulting in loss of agility, responsiveness to market changes, and margins;
- All resources and efforts will be at least doubled as more stakeholders, departments, and employees will have to update prices and make data available for their counterparts within the company’s systems;
- The increased pressure and lack of insight will put a strain on the marketing, sales, and pricing departments, leading to a decrease in performance;
- Despite the best intentions, incentives and controls regarding pricing may be inconsistent throughout the organization, which will negatively impact organizational structures;
- If there are weak links in the pricing chain, misalignment will exploit those vulnerabilities while consolidating organizational alignment will level the field and expose the gaps that need to be addressed.
For the pricing organization to realize its full potential, it needs to be, as the name implies, organized. Although traditionally everyone in the organization owns a piece of pricing, not everyone is cooperating or contributing on the same level.
And this is not because of some territorial behaviors on the part of the various stakeholders involved in pricing, but because of a lack of consistency, structure, and even tools and technology that facilitate and streamline cooperation between departments.
Pricing optimization requires organizational alignment
In today’s inflationary landscape, stricken by macro-environmental changes at every turn in recent years, businesses are looking for more sustainable solutions to their pricing problems. One of the most lucrative ideas for industry players is to develop agility and resilience which will help them adjust to constant market changes and shifting customer behaviors.
Beyond the inflation phenomenon and other consequences of supply chain disruptions which may or may not be foreseeable, customers are always evolving their preferences and expectations. And their willingness to pay is, likewise, increasing or decreasing based on their needs for and experiences with a company’s products or services.
The pricing organization needs to be aware and nimble enough to react to those developments, slight or critical as they may be, in order to maintain or increase the company’s margins in any circumstances. The reality is that pricing is not one of those functions that the organization can set up and then sit back to watch how it produces the desired outcomes.
As the market changes, so should the pricing function evolve. And since change is a constant reality, the pricing function needs to be constantly assessed, revised, and upgraded by the relevant parties. That’s what pricing excellence is—an ability to constantly optimize pricing or, as Simon-Kucher defines it, the ability of a company to get all or nearly all “the money it deserves for the value it delivers.”
As this pricing power can only be attained through the cooperation of sales, marketing, finance, and operations, business leaders must understand the importance of focusing on both the technical and social sides of pricing, and convey the same understanding to the different stakeholders.
The pricing organization will realize its full potential only when the focus is equally split between strategy and execution—and the latter involves a great degree of change management so that the roles, processes, and capabilities critical to its success can be transformed.
How to foster cross-departmental collaboration
The research of pricing experts Stephan Liozu and Andreas Hinterhuber shows us that “much of the attention to pricing by consultants, practitioners, and scholars continues to focus on its technical, analytical side.” While indeed the quantitative and analytical aspects of pricing are critical and indispensable, they no longer represent the pricing function in its entirety.
Although ownership of pricing can be centralized, the function shouldn’t be isolated from departments such as marketing and sales. For example, marketing teams are well-positioned to expand the function based on their understanding of the customer and their willingness to pay. Likewise, sales teams, who are responsible for communicating value and closing deals, know directly how customers react to pricing changes.
Notably, sales teams are also the sole owners of pricing in most organizations, closely followed by marketing. But without the two collaborating under the management of a pricing professional who can also involve other relevant stakeholders, the pricing function cannot expand and reach its full potential.
Collaborating at scale—ideally through the use of technology and AI-powered tools that streamline communication and enable a data flow between departments—can help sales teams increase their wins, transform their processes, and even maintain or grow their influence in pricing optimization. So, how can top management facilitate cross-departmental collaboration and organize a team around pricing excellence? Here are three key items that can foster cross-departmental collaboration.
1 – Change management
Change management is all about preparing the organization to transform its processes and supporting the people in it during the transition. Because change can create disorder, it’s important to assign a leader or price manager who can provide direction for the different team members. Someone who can effectively convey the new vision for pricing, organize everyone around the same goals, and educate them on how to leverage the new processes and tools available to them is an indispensable asset in change management.
2 – Streamlined communication
With the right tools, departments can more easily communicate with each other without having to neglect their operations or go to unnecessary lengths to convey strategic information for pricing execution. Something as simple as an organizational procedure or system can align everyone to be on the same page about the status of the project with all the important updates and risk assessments relevant to their roles. Ideally, project management software and open communication can replace the otherwise daunting task of manual updates and system synching to enable project participants to maintain their level of productivity and collaboration.
3 – Data aggregation
Everyone involved in pricing needs to understand that their pricing activities and data are interdependent. By knowing that the information they provide is critical to deriving actionable insights for price optimization, stakeholders will be much more cooperant and realize the importance and purpose of the collaboration. Whether through a central pricing system or a data warehouse, it’s important to collect all relevant and reliable pricing data, which is otherwise scattered in multiple IT systems from different departments, in a centralized repository. Sometimes, the pricing data aggregated demands context, creating an opportunity for the data providers in the organization to gather and discuss their insights.
Of course, improving cross-departmental collaboration also involves establishing the main KPIs, agreeing on the course of action in case of major or special deals, assessing what can be enhanced in the different departments involved, and more. But starting with something as simple as implementing the right communication tools and assigning a team leader is a good initial step.
Developing an agile pricing capability
Essentially, developing an agile pricing capability heavily relies upon sales, finance, marketing, pricing, and operations collaborating with each other under the watchful eye of a pricing executive who can:
- Delegate the appropriate pricing responsibilities to those involved;
- Facilitate a data flow between the different departments;
- Ensure regular check-ins between finance, sales, and pricing for value creation.
The highly volatile market today is forcing pricing organizations to revise their strategy and execution. Inflation has put a strain on sales and finance in particular, which are struggling to juggle with the rising costs and price increases as time-effectively as possible, leaving them with few resources to focus on alignment.
But without alignment, their seemingly time-effective strategies may lack sustainability and insights from their counterparts. Whereas finance has insights into the costs of raw materials, product development, and other expenses, sales has insights into the customer’s willingness to pay for the perceived value of the company’s product or services. As such, it’s essential that at least these two departments are always closely aligned.
For more on the connection between pricing excellence and cross-functional collaboration, join us at the Manufacturing Pricing Excellence summit in Stockholm this September, and exchange actionable insights with 50 pricing professionals and experts.