How to Align Departments for Pricing Success
The Pricing Department office is potentially full of horrors, most of them mundane and come and go without consequence. But there was that time that the company’s pricing project fell apart through pure organizational misalignment between departments and it ended up costing your organization millions. If only you could have that time over again to align your company’s departments and not have to pay out millions to multiple clients for breaking the conditions of your contracts……..and it only happened because your teams were working in silos and not communicating. It is a horror story easily avoided, and we want to make sure that you have faced your organizational demons and it never happens to you. Join us in this article for a guide through methods of Aligning Departments with Your Pricing Strategy.
For more than 10 years, at Pricefx we have been working alongside hundreds of large-scale enterprise business organizations just like yours assisting them to realize their unique pricing niches with the use of innovative cloud-native pricing software technology. With significant levels of pricing experience, Pricefx is perfectly placed to assess and advise on curing siloed departments as the crux of your pricing woes.
So, let’s get started by looking at the list of departments in your organization that you will need to align before we take a deeper dive into each department and their symbiotic relation with your pricing success. Plus, we will also provide you with a bonus on how the distinct parts of your pricing software also mirror the symbiosis of your departments in driving successful pricing.
The Departments You Need Working Together to Drive Great Pricing
There is a no polite or diplomatic way to say this, but if the distinct departments of your organization are all working as separate entities and not working as a gelled unit, then your pricing may forever be doomed to failure.
Symbiosis can be a powerful force in a business and having everyone across a range of your company’s departments working towards the same shared organizational goal, or in this case, a company-wide pricing strategy driving value by supporting employee productivity and company profitability.
After all, the pricing department is not an isolated island in your organization.
To organize your pricing strategy into optimal alignment with the various departments across your organization, you will need to have the following sections of your business all involved in a symbiotic pricing ecosystem;
- The Sales Department
- The Marketing Department
- The Pricing Department
- The IT Department
- The Product Marketing Department
- The Production Department
- The Finance Department
- Corporate/Business Operations
1. The Sales Department
Your Sales Department are the end users of your prices as they are the ones in the front line with your customers. At is sales who are going to the coal face with your customers. You need to give them prices (or more realistically a price corridor – consisting of a maximum sale price and a minimum price threshold beyond which is a ‘no trespass-no-go zone.’
By creating for your Sales Department, the price corridor of maximum and minimum price threshold limits for your products, you are creating pricing that is easily understood, easily defended and a definition of and perception of the value for your products in the eyes of your customers.
If your salespeople perceive and understand your pricing and its consistency, they will be much more confident and aware of reaching their targets and therefore, driving your business to profit.
Learn More Here About Making Your Sales Compensation More Effective
2. The Marketing Department
Marketing is often guided by what are known as “The Four Ps” of product, price, place, and promotion. The price a business charges for its product affects its customers’ perceived value of the product and can create barriers to entry for new competitors, may force existing competitors to lower their prices, or even influence a company’s decisions on what distribution channels to use.
But most importantly, your Marketing Department sets your company’s value communication.
Value communication is when a business tells customers what a product, service or company can do for them. This can be through commercials, social media, web posts or email. Learning more about how to communicate value to your customers can help you improve the success of the outcomes of your organization’s pricing, as it affects how potential customers view your product or services.
3. The Pricing Department
Not every business organization may have a pricing department and its role may rest within any (or a combination) of the other 7 departments shown here.
The Pricing Department of any company is essentially the guardian of revenue and value. Think: Revenue – Costs = Profit. Set the correct price to gain revenue. However, to set the price correctly on a regular basis, the Pricing Department must:
- Understand value
- Assist in communicating value
- Supply the prices that the Sales Department can use to defend your product’s value when interacting with customers and prospects
Price and revenue are all about value. If a company is not pricing to value, chances are it has a margin leakage problem.
To avoid leakage and maximize profit, the pricing division should act as a cross-functional, strategic team who:
- Have a deep understanding of your product offerings.
- Uses data-informed pricing software to optimize prices, discover opportunities for extra profit you never knew you had and minimize margin leakage.
- Are aware of costs and constraints, just like the Finance Department.
- Collaborates with the Marketing Department to develop internal and external value messages.
- Works side-by-side with Sales to sell product value.
4. The IT Department
Sure, integrating your ERP, CRM and wherever you hold your organization’s prime data source to feed into your pricing software is an essential job for your IT Department.
However, there is a much more important job that your IT Department needs to undertake. Your It Department needs to ensure that the data you are feeding into your pricing software is clean. Just like a Ferrari that requires top quality fuel to achieve its optimum performance, so too does your pricing software need the cleanest data set possible.
If you do not have the right level and strong support of data quality that you need to give you the proper insights to have valuable discussion with your Sales Department, you will not be able to give them the right support and price insights this time in terms of price. You require good data quality to have the right level of pricing visibility and take the right decision.
Your IT Department are the defenders of your sole source of data quality and cleanliness.
5. The Product Marketing Department
Your Product Marketing Department also focuses on pricing, but through the focus of understanding the market and market needs, by emphasizing your products’ features and value compared to your competitors. Product marketers are the ones who will explain to the marketplace why your product is the best (or not), why it is more expensive (or not) and why it does tasks better (or not) than your competitors. Product marketing is simply strategic marketing at the product or product-line level.
Product marketing is the department that focuses on your products’ technological and component advantages over the competition and works together with sales and marketing and pricing to place your goods in the price corridor that best suits.
Take Samsung phones for example, in Europe or North America, product marketing places their A-series phones priced as the entry level product below the premium Galaxy models. However, in India, Indonesia or other developing markets, the A-series phone is priced by their product marketing team as a premium product where its components are superior to other cheaper phones in the market.
6. The Production Department
Your Production Department is responsible for converting raw materials and other inputs into finished goods or services. In between the processes of production, the department works to improve the efficiency of the production or assembly line so that it can meet the output targets set by company management and ensure finished products offer consumers the best value and quality.
In that way, your Production Department has an influence over your pricing; the cheaper or more expensive the costs of production (in theory at least), the cheaper or more expensive your goods or services. One effortless way to do this is to keep the production machinery and equipment well-maintained so the firm does not regularly incur repair costs. Advising your business to adopt newer technologies, the department can also assess the production line to identify opportunities for cost reduction.
For example, for a furniture manufacturer it may be prudent to spend a few dollars more per ton for dried lumber rather than make huge capital investment on expensive wood dryers that also slow down the production process.
7. The Finance Department
The Finance Department determines the exact cost to make each unit of a product or service, calculates the expenses to run the business, determines the cost to sell and distribute the product, and projects the ultimate expense per unit of a product based on different sales volumes.
Once the Finance Department determines the exact total cost to make and sell the company’s products and services, and to run the company, it projects the income the company will need to pay wages and bonuses to employees and taxes and make a profit.
8. Corporate/Business Operations
Your C-Suite executives will set the overall business objectives for your organization and that will influence your pricing strategy. For example, does your company intend to price-match competitors on everything in a competitive pricing strategy, or does your company offer a unique good or service that enables you to exclusively use a value-based pricing strategy? Or is your C-level leadership team looking to produce a range of new products into the market and sell at razor-thin profit margins until the new products take a foothold in the marketplace?
Deciding Where Pricing Reports
As we can see, Pricing has no one single home in your organization and is so cross-functional that it can live almost anywhere. There really is no “right” answer, as every company will differ in environment and needs, but wherever it sits for your business, your departments need to be working together as a functioning unit to make it all it can possibly be.
Regardless of where the pricing function lives in your business, facts, data, and a data-informed pricing software solution like that offered by Pricefx should be the foundation for your pricing strategy. Pricing strategy decision-making needs to be made on objective fact, and your team should be watching the metrics that track pricing activity, improvement opportunities, and ongoing performance.
Now you are an expert in conducting the ‘pricing orchestra’ in your organization and your pricing is playing the sweet music that only harmoniously working together brings. It is only natural now that you will want to learn more about the cutting-edge new set of pricing metrics and next-level KPIs you need to turbo-boost your pricing and drive it to the next level. Check out the article below to learn more;
About the Author
Idrissa Diop has over a decade of experience in pricing. As a Solution Strategist at Pricefx, Idrissa helps companies to improve their pricing processes, profit, and growth with software. His expertise ranges from defining a pricing strategy to pricing strategy audits and competitive analysis.