Pricing Best Practices SlideBook
We pulled together 10 of the top thought leaders and industry experts in the world of B2B pricing to ask them one question: What is the best advice you could give a fellow pricing strategist?
Published on: Mar 4, 2016
Transcripts - Pricing Best Practices SlideBook
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL
What is the best advice you could give
a fellow pricing strategist?
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL
A Bit of Background
In the world of B2B, pricing decisions have an unparalleled ability to impact profit and margins.
In fact, according to a McKinsey and Company Study, a 1% improvement in realized price yields
a 10% improvement to the bottom line on average.
That’s a big impact. But, where do you get started?
A pricing journey can be daunting, but you don’t have to face it alone. You can learn from the
veterans - the pricing pros who have successfully optimized profit in their organizations. They
are full of actionable insights and valuable tips to help you along your pricing journey.
And, the best part is: they are eager to share! So, we pulled together 10 of the top pricing
thought leaders and industry experts to ask them one question:
What is the best advice you could
give a fellow pricing strategist?
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Director - Vendavo
Have the Courage to Face Your Data
You will probably be surprised, and possibly embarrassed, by the data you
see when you first start analyzing your profit.
You may see transactions with lower margins than you expected. In fact,
you may even see negative margin transactions. You have never had this
unique view of transactional data before, and it can be a bit shocking. As
one Marketing Manager declared on a previous project, “I would have
never approved that deal if I knew the margin was that low!” Key
stakeholders may feel threatened by this data. And, this can be a
significant change-acceptance concern for your project.
So, when you start your pricing initiative, prepare your team in advance for
this information. Your organization should be ready to accept the message
your data is telling you. Use this as a starting point to modify your
organization’s current pricing strategy to drive increased pricing
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Stephen M. Boyle
Realize that Improving Data Quality
is a Process
The quality of your pricing analytics can only be as good as the quality of your
source data. Having good data is essential to analyzing effectively and
making competent pricing decisions based on that data.
But, this does not mean that you should wait until you have a perfect dataset
before you begin putting that information to use. Big data and perfect data are
not synonymous, so do not become paralyzed in a search for a utopian
dataset. Rather, keep a watchful eye for anomalies, and when one arises,
take the time to investigate if that abnormality is valid or not.
You cannot chase every rabbit down every hole. But, when you do uncover
and correct one segment of bad data, also check the immediate vicinity -
items in the same product group, items from the same manufacturing location
or vendor, and items that consist of identical or similar components. You may
be able to quickly discover and correct other issues with less research and
exploration than was required for that initial finding.
Much like gardening, managing and improving the quality of your data is a
constant, ongoing process. Just because you go through and pull all the
weeds in the spring, does not mean that your garden will remain weed-free all
year long. The vigilance of continually identifying, removing, and correcting
flawed data should help you recognize if you have recurring sources of faulty
information, potentially allowing the root causes to be remedied at their origins
rather than pursuing and fixing the effects of those sources of bad data.
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Remember that People are Irrational
The best advice I would give a fellow pricing strategist is to always keep in mind
that people are irrational. Even the rational ones. In pricing strategically, we rely
heavily on data. But, what is the source of our data? Sales based on purchases
by irrational people.
Different people pay wildly different prices for the same product. In fact, the
same person is willing to pay wildly different prices for the same product on
different days. Customers say $200 is too expensive for a product, but then
happily buy it when they see the next model up costs $500. $5 is just too much,
but $10 with a 50% discount is a steal. We’ve come up with terms like “anchor
pricing” or “relative pricing” to explain these phenomena (and they are useful
concepts), but at the end of the day, people are simply irrational.
Does this mean our data is useless? That pricing is a futile activity? Hardly. We
know to ignore anecdotal pricing, but then base decisions on “averages.” We
compensate sales on revenue but measure business performance on margin.
We continue to undercut our competitors to win market share, then act
surprised when they do the same and the entire market plummets. In short, we
Instead, we need to look for patterns in the irrational. We need to segment it
again, and maybe even once more. We understand “anchor pricing,” but do we
use it? Do we track it? Are we segmenting the data in a meaningful way to
enhance future pricing? If the answer is “no” to any of the above, are you
In sum, people are irrational, but your prices don’t have to be.
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Price from the Customer’s Perspective
Value-based pricing aims for prices to reflect the value customers
associate with a product or service offering. Simple enough to state, but
how is this done?
The total value of an offering is the difference between the perceived
benefits a customer gains in acquiring the offering and the perceived price
they pay to acquire that offering. But, customers don’t consider the total
value of an offering, they instead make purchase decisions based on
relative, differential value.
Differential value is the difference in value acquired through the focal offer
versus that acquired from a competing alternative offer.
If an offer provides more value than its competing alternative, customers
will chose that offering. If an offer provides less value than its competing
alternative, customers will choose the alternative offering. That is,
customers choose the offering which delivers the greatist differential value
From this, we find the maximum price the firm can charge a customer to
be the price of the competing alternative adjusted for the firm’s differential
Tim J. Smith, PhD.
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Value-based pricing aims to identify and use that maximum price. That is,
value-based pricing strives to price offers in relation to their competing
alternative - taking into account the difference in benefits, both positive
and negative, that the firm’s offer delivers in comparison to what the
alternative offer delivers.
Researchers have devised many ways to estimate a customer’s
willingness to pay. Each of these techniques and approaches help
managers get closer to the goal of value-based pricing, and anyone
striving towards that goal can legitimately claim to be doing value-based
pricing, but none of them perfectly reach that goal for every customer.
They just get a firm closer to it. They just help narrow the uncertainty
around the price which most reflects the value customers are willing to
pay. Yet, reducing uncertainty in customer willingness to pay through a
continuous improvement cycle enables a firm to price better.
Now, that is the goal of value-based pricing.
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Keep Your Customers, Team,
and Front Line in Mind
Successful pricing projects involve all stakeholders, internal and external.
First off, know what’s of value to your customer, how your products create
value for your customers, and what your company does better than the
competition in areas that matter to your customers. Then, you need to
strategically manage your customers. Not all customers are the same, so
don’t treat them that way.
Involve key players from the other functions in your company - remember
that pricing is a team sport and you won’t be successful unless the whole
team is “in the game.” Extending this team to include departments such as
Engineering and New Product Development will help ensure that even the
new products being developed are of value to the customer and better than
the competition in meaningful ways.
While the support of the whole team is important, it can all be given away by
the front line if your sales folks aren’t properly incented, sufficiently trained,
and “armed.” Training should include not only your pricing strategy and the
product’s value but also how to best respond to the increasingly
sophisticated procurement tactics. Arming your sales folks means making
sure that they have ready access to the key pieces of information that they
need to be successful in their negotiations and the right level of support
from your company. Having these items in place will help you to ensure that
your company captures a better return for its investment in the research,
development, production, and delivery of its products to its customers.
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Provide a Robust Practice System
When introducing users to a new pricing process, it is essential that you
provide a robust practice system. Users need to be able to practice the
new pricing process using pricing situations they encounter every day.
The practice system needs to include realistic data; the same customers,
materials, list prices, historic data that the users work with. You don’t have
to have all the data, just make sure the data you provide reflects the
environment the user works in.
Having a practice system that mirrors their existing world enables them to
truly learn the new process - think of it as a place where users can get a
lab experience. If your university experience only included lectures and
textbook, how well would you have learned? Everyone needs to be able to
experience and try the new process.
Once you provide a viable practice system, make sure each user owns
their learning. Just like mom and dad couldn’t ensure you graduated, as
trainers, you can’t teach someone who doesn’t choose to learn. Make
sure each user sees his responsibility in learning to be ready for go-live in
a new pricing process.
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Give users homework and tests. Ensure that they do the work necessary to
learn. Maybe go so far as to say, “Users who fail the certification, don’t get
a sign on to the new system.” Give users an opportunity to retake the test,
but ensure they pass. This seems harsh, but it ensures a level of
competence in the new process.
In all of it, never forget the power of positive feedback and encouragement.
Users of all ages and experience thrive when they hear someone say
“good job” or “thanks for your efforts today.” Pile on the praise. It goes a
long way in helping users overcome anxiety and stress.
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Pricing Group, LLC
Don’t Fear Culture – Shape It!
Do not let sub-optimal pricing practices perpetuate on the account of cultural
barriers! Culture can appear nebulous, inactionable, and thus
insurmountable. Fearing culture, rather than managing its relevant
components, can stall or even derail pricing initiatives.
Organizational culture has been defined to be a product of various factors
such as technology, management styles, strategy, including the systems
and assumptions used across the organization. Identify tangible
components of culture that should evolve and leverage executive support to
Specifically, impact behaviors by challenging assumptions, upgrading
systems, fostering cross-functional involvement, and leveraging incentives
• Use the outputs and insights from analytics to:
- Challenge historical assumptions.
- Strengthen tools and processes:
- Upgrade/inform (preferably not replace) pricing processes and
systems used by sales professionals. For example, modify GUI
screens to show more market (and less cost/margin) data, and to
make it easier to leverage market price guidance.
- Add practical tools for sales professionals. For instance, add tools to
better communicate/quantify applicable value prop elements.
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• Create formal mechanisms for sales professionals to give input, such as
roles on project teams and standing councils, or digital channels.
- The “feet on the ground” have relevant insights into how real markets
behave and evolve. They can offer meaningful, ongoing input into
- Sales professionals are more likely to buy into a solution if they feel
they can influence it, rather than if they are asked to blindly trust it.
• Beyond just enforcing compliance, monitor for feedback about where
pricing algorithms may stand adjustment. Close the loop by acting on this
feedback: keep refining the pricing algorithms.
• Leverage incentives to reinforce desired behaviors. Be sure your sales
force clearly understands how their use of the price guidance drives their
To translate analytics into tangible results, pricing professionals may need to
step out of their quantitative/analytical comfort zones, drive changes in
behaviors – and become change agents shaping culture at their
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL 13
Price to Profits
Relentlessly Question the Status Quo
No doubt you will find pricing opportunities and value leakage in most
businesses. However, do not stop at the easy and obvious
improvements. What separates the best pricing strategist from the
average is their ability to develop more strategic ideas for improving
profit. They continually look for new approaches to achieve even higher
They may start with easy transactional improvements – such as, which of
my customers are paying under target price? Or, where am I leaking
value in my profit waterfall? Then, they question performance across the
other two elements of pricing: value pricing and strategic/industry-level
pricing. They question pricing strategy and targets as well as policies and
pricing execution capability.
Is their price increase stick rate high? Does sales often revert to dropping
price in difficult situations? Are competitors aggressively attacking their
customers? Have they over-priced any markets and stifled growth?
Could they improve profits if they influenced the business’s
segmentation, offering (products & services), assets or supply chain
They question short term through mid-to-long term opportunities. They
gather current and predictive information on competitors’ pricing strategy,
asset capacities and costs along with macro-economic data, industry
trends, and customer needs. They ask “how might we influence or take
advantage of the future?”
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These are the tough questions the best strategists explore and find
creative solutions for. Recommendations often go beyond price and into
refining other strategies (asset or supply chain choices, segmentation
strategies, offerings per segment, etc.).
This requires strategic out-of-the-box thinking as well as good
business/marketing acumen. Developing this capability is best done by
working with strong pricing mentors as well as having previous
marketing or product management roles (or building a team that
includes a product or marketing manager). Advanced training, continual
learning, and self-motivation to question the status quo are critical.
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL 15
Global Director -
Avoid Boiling the Ocean
Resist the temptation to boil the ocean. In fact, ignore pretty much all the
big, grand, transformative success stories that you may have heard at
pricing conferences. Sure, those things are nice. You are probably going to
have an urge to implement or strengthen value-based pricing. We pricing
people are easily convinced by the profit potential of micro-segmentation,
dynamic price targets, and all that stuff. But, there is a big difference
between those things and the reality of getting incremental gains in a
somewhat normal situation.
If your organization is pretty normal for that of a pricing leader, you do not
have a massive staff, and you do not have a massive budget. The key is to
look at the total roster of things to be improved, then rack and stack them
by dollar impact on one axis and difficulty or time-to-value on the other.
The optimal set of activities is one that forms a natural “trail of
breadcrumbs” to the largest prize. Knock off some easy-to-do things and
the largest quick wins. The set of activities that you determine as your road
map should have some kind of logical flow or theme. It will present a
coherent set of actions and people will see the progression towards pricing
Additionally, though I would advocate for piloting of new initiatives, it does
add some risk – perhaps not the one you might expect. It provides the
people involved in Phase 2 to claim “we’re different from the pilot group”.
Tiresome, and always wrong. You simply have to pre-emptively avoid it by
prior and repeated senior leadership messaging of the whole plan. Sure, it
delays some benefit – but, take the pragmatic approach. A slow, measured
win is far better than a quick, big disaster.
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL 16
Above All – Never Give Up
As you begin your adventures in the pricing transformation world, valued
pricing colleagues will coach that “pricing is a journey.”
This can be a difficult concept at first. Driven, take-charge people often want
to believe that the world can change overnight with detailed planning,
organization, and hard work.
The bottom line is that a lot can be accomplished very quickly. But, real,
established, and on-going improvements take much longer.
Keep in mind that pricing transformation requires people to change. Human
thought process and habit modification can be very difficult. Even if the
players are 100% invested, science tells us that on average it takes 21
repetitions to change a habit. So, dig in and communicate, communicate,
communicate. The more people understand and learn how the
improvements can positively impact them, the more they will be open to
As you go on your journey, there will be great highs and a few lows –
wonderful strategic successes and a few “why did we try that?” times.
The key to success is perseverance.
Pricing is a noble calling that will utilize every ounce of your strategic,
communication, and creative abilities. At the end of the day, you can easily
reflect on successes, celebrate, and know the journey was worth it.
© 2015 Vendavo, Inc. PROPRIETARY & CONFIDENTIAL
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