Many companies launch pricing transformations as a way to create value quickly and sustainably.
NB: This is an article from McKinsey
Indeed, pricing excellence in B2B settings—setting the right prices, and ensuring the right price is paid in each transaction–is driven by precision, attention to detail, and agility, all of which digital pricing transformations facilitate. Our experience shows that such transformations, when done well, can enhance pricing to generate two to seven percentage points of sustained margin improvement with initial benefits in as little as three to six months.
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Digitally enabled pricing transformations hinge on new technology tools, and B2B companies are increasingly adopting approaches such as end-to-end price optimization and management, configure-price-quote (CPQ) applications, and business intelligence (BI) packages. However, inexperience and bias can lead organizations to give too little consideration to tech tools, to overemphasize tools rather than examine their actual needs and processes, or to cobble together ad hoc tools that don’t work together smoothly. As a result, many pricing transformations, even at organizations that are willing to invest in technology, fail.
Pricing transformations and technology selections are more likely to be effective when they are grounded in a redesign of the whole pricing process. In that context, decision makers such as CSOs, CMOs, and CIOs need to assess their current systems, design the future-state systems that fit their needs, and deploy the right tools to meet those needs so they can support and sustain the gains from the transformation. Only by taking this more holistic approach can companies hope to quickly capture the significant margin improvements at stake.
Common pitfalls in approaching pricing technology
Tech-enabled pricing-transformation misfires stem from a failure to consider how different pricing-tech components may—or may not—fit with a given organization’s unique capabilities and needs (Exhibit 1).
Exhibit 1
Some companies are technology averse. They believe that they can produce the impact of optimized pricing through processes and policies without relying too much on tools and technology. Without this focus on tools and technology, organizations struggle to implement the right governance and accountability for their new processes. Crucially, they often find it difficult to monitor and manage overall pricing performance and misinterpret this as a failure of policy, when it is actually more directly linked to missing the opportunity to use pricing tools to support a holistic transformation.
At the other extreme, many companies have an inflated belief in the effectiveness of a single tool. In large companies, this approach means that disparate—and separately managed—business units can try to implement a single tool that will define and drive the global pricing process. But without taking into consideration the value of an updated and holistic process and its technological requirements, not to mention the needs of business units that deal in variably commoditized or specialized offerings such as long-term contracts and spot sales, this tool-focused approach often fails.
A third common trap is a “build-as-you-go” approach, premised on a company’s belief that it can meet its needs with existing and ad hoc tools without planning for change. Many companies that take this approach have not invested in robust customer relationship management (CRM) systems, master data processes, or integrated pricing processes. A suite of ad hoc solutions may not translate across markets or business units. Such tools may also depend on the knowledge of a few key individuals, which makes them harder to sustain should these key individuals leave. Such companies can find themselves unable to scale the positive changes they make, and transformations can fail to deliver—or sustain—their initial impact.
Pricing technology for maximum benefit
It is crucial that companies treat this tech as a key enabler—not the agent—of pricing transformation. Easy to overlook is the fact that tools and systems need to be embedded into the right process and organization, accompanied by the right mindsets, behaviors, and capabilities.
