Five keys to a successful pricing process

Only one out of every five companies that embark on implementing a pricing strategy manages to consolidate a successful and sustainable process over time. The remaining four fail to achieve significant improvements in profitability, either due to partial implementation of the designed pricing strategy or because they abandon the process entirely after a year. What do companies that achieve the consolidation of the pricing process within the organization have in common? According to our experience, these companies meet the following five conditions:

Movie instead of photograph
Many companies confuse adopting a pricing process with conducting one-off price studies. Any market research—elasticity, value perception, competitor price checks, etc.—should only serve as input for a dynamic pricing management process. A mature pricing process does not consist of making a one-time price optimization decision but in continuously adjusting the criteria for making these decisions day-to-day.

People and technology
Processes are based on the best-known practices in a discipline. These practices are developed by people, based on their experience and empirical knowledge. The goal of any mature process is to convert that knowledge into replicable actions that do not depend on the person who developed the process. To achieve this, it is necessary to rely on technological solutions that turn empirical knowledge into algorithms executable by anyone managing the process. The pricing process is no exception.

A clear owner
One of the main reasons pricing processes fail in organizations is the lack of a responsible party to keep the “gears greased.” This involves not only keeping the internal and external information feeding the process up to date but also coordinating all areas involved in reviewing and validating the recommendations generated by the analytical tool.

Reliable logic
When the price adjustment recommendations made by the analytical tool do not align with the team’s common sense, trust in the process is lost. If this happens, more exceptions will be made, more disobedience will occur, and eventually, the process will stop being used altogether. To prevent this, the analytical tool's algorithms must be consistent with the organization's empirical knowledge, without simply “pleasing” the sales team.

Everyone in agreement
An interdisciplinary committee should meet periodically to discuss and approve price adjustments suggested by the analytical tool, especially while the process has not yet reached sufficient maturity. Each committee meeting does not necessarily imply changes to price lists or discounts. Even if no price adjustments are planned, the committee should periodically analyze opportunities and gaps identified by the process and schedule the appropriate time to implement adjustments.

In summary...
The making of profitable pricing decisions in companies should not be viewed as one-off efforts. Instead, they should be part of a process based on technology and personnel with sufficient judgment to validate recommendations. But like any process, there must be an owner to coordinate all involved areas. Finally, to ensure that price adjustments suggested by the process are correctly implemented, they must be consistent with the sales team’s empirical knowledge but approved by an interdisciplinary committee.