Continuous Improvement

Who Owns Pricing?

The Pricing Czar is dead. He lies in state with other forgettable organizational models propounded by consultants and academics. The idea behind this model, an all-powerful person could enforce unquestionable discipline, simply does not fit with human nature. Historically, people have given in to autocracy but have always revolted against it to find themselves in better or worse shape. Companies play out their own version of the Russian revolution where heads roll, thankfully, without the blood and gore. As a new pricing manager, I had once aspired for czar-hood to centralize the pricing function for my employer. Thanks to painful experiences and good as well as bad advice, I learned that an institutional “democracy” is the only prudent but not the easiest path for a pricing professional. The ongoing challenge for pricers is how to organize multiple functions and layers into successful pricing institutions. One reason pricing processes in a company are complex is that they involve almost everyone in the company, or at least that is what everyone in the company thinks. Having varied groups with different views and incentives, sets the stage for pricing processes to be different across different companies depending on where the pricing function is located and to who it reports – pricing, finance, sales, or product management. Since pricing involves the customer, it involves the front-line groups, sales and customer service. Then there is marketing, which itself is a big and diverse group including marketing communications, brand managers, product managers, and marketing managers. Moreover, the senior managers invariably tend to lean on the decision process when the prospective customer is large or even potentially large. IT is involved as a support role because they create and/or maintain the enabling systems and reporting. Also involved is the pricing administration group and possibly, a multi-function pricing strategy group. The clout and effectiveness of the pricing function depends on where the pricing group is within marketing, sales, finance, and strategy or if it is a standalone group and with a clear control role. Many companies demarcate pricing strategy from tactics by having marketing own list price and sales own the discounts and hence the net price to customers. Oversight or control of realized prices is the responsibility of the pricing or finance group. While this explains roles at a high level, most price-related actions generate emotion because roles and responsibilities remain unclear and get constantly re-defined in the what-who-when of action plans. For pricing professionals who care for process improvement, turf battles should not be an agenda item. Instead, they should gain influence as “community organizers” who proactively look into pricing issues, identifying root causes, and supporting and getting support from different groups by showing evidence how they can gain from it. This sounds utopian yet quite practical within the scope of a full-time job. Even tenured employees in established organizations can map pricing processes and analyze data to understand pricing issues. My book, Six Sigma Pricing, has a tool-kit on how to frame issues and overcome them without alienating colleagues and customers. Collaborative actions to achieve shared goals align people with business strategies and pricing execution. The Pricing Czar is dead. Long live the Pricing Organizer!