Firstly what does someone mean when exclaiming “it’s pricing chaos”? Typically it’s an observation that pricing is undertaken in an ad-hoc, often reactive manner where the capacity to manage pricing effectively is poor. Significant pricing inconsistencies occur probably in an environment where the loudest voices win and the blame game is common. It’s messy, tension creating and damaging to any organisation.
What about Sales? As any sales person knows, if his value message is not clear and convincing – he will not convert a sale. His skills have been honed to weave a strong case or story which convinces the customer of the value proposition. The best sales person believes in what he is selling (mostly 🙂 ) and can translate this conviction to his customer.
Playback our pricing chaos scenario – what does the situation look like from the Sales perspective? As a sales rep I will notice that the organisation is unsure about its value proposition. Prices seem to be determined on an arbitrary basis and in most likelihood some of the loudest voices are able to argue the need for price decreases or discounts. Usually anecdotal vignettes about the competitive threat will create an atmosphere of what could be called “pricing drama” where everyone is worried about each and every competitive hearsay. This “pricing drama” atmosphere in itself establishes an underlying uncertainty principle where the organisation is seen as lacking confidence in its proposition. In essence a leadership gap is visible to all when it comes to the proposition and direction of the business.
So what are we selling and for how much? If this key question can’t be answered well, how can I believe this is an organisation that knows how to manoeuvre the market opportunity effectively? And if I don’t trust the organisation why would I engage my loyalty to such a scenario? Surely my doubts will keep me looking around for greener sales pastures where I can find a better value proposition. Again, as a sales rep, I want a clear proposition with a price where an average sales effort can deliver and convert to a sale.
The implication of a pricing chaos scenario? Not only am I not maximising my pricing opportunities, I am also weakening and undermining my sales results. If my sales effort is undermined I create a double negative – weaker sales and weaker pricing than what is possible. That is not a value maximising formula and therefore becomes a key management action point.
In contrast a coherent and well defined price structure, that reflects the value proposition well, will give Sales the confidence to focus on what they do best i.e. selling. The organisation that is on top of its pricing is also communicating a confident leadership to Sales. A few % points of incremental sales can make the difference between being profitable and unprofitable. So a good pricing structure will not only improve and impact prices but also sales result by creating a confident culture that is more efficient and able to better execute sales.
Patrick Mosimann (Director of Price Align)