Th art of PRICING

A good article from the Harvard Business Review.

The KEY message from below that is so relevant for us (in my opinion) would be

  • employ truly tailored pricing at the individual customer and product level

 price

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A Survey of 1,700 Companies Reveals Common B2B Pricing Mistakes

Poor pricing practices are insidious — they damage a company’s economics but can go unnoticed for years. Consider the case of a major industrial goods manufacturer that was struggling with low profit margins, relative both to competitors and to its own historical performance. It traced much of the cause to a mismatch between its sales incentives and pricing strategy. The manufacturer was compensating sales representatives based solely on how much revenue they generated. Reps thus had little motivation to hit or exceed price targets on any given deal, and most were closing deals at the lowest permissible margin.

Like this manufacturer, many business-to-business (B2B) companies have a major opportunity to improve their standing on price. To help companies understand the state of pricing capabilities and how they figure into performance, Bain & Company conducted a global survey of sales leaders, vice presidents of pricing, CEOs, CMOs, and other executives at more than 1,700 B2B companies. We gathered their self-rating of 42 pricing capabilities and outcomes.

Roughly 85% of respondents believe their pricing decisions could improve. On average, large capability gaps exist in price and discount structure, sales incentives, use of tools and tracking, and structure of cross-functional pricing teams and forums.

What Pricing Leaders Do Differently

To understand which capabilities matter most, we studied a subset of top-performing companies, as defined by increased market share, self-described excellent pricing decisions, and execution of regular price increases. While different pricing capabilities may be important for a particular situation, the analysis showed that top performers exceed their peers primarily in three areas. Top performers are more likely to:

  • employ truly tailored pricing at the individual customer and product level
  • align the incentives for frontline sales staff with the pricing strategy, encouraging prudent pricing through an appropriate balance of fixed and variable compensation
  • invest in ongoing development of capabilities among the sales and pricing teams through training and tools

Our analysis also revealed just how much excelling across multiple pricing capabilities pays off. Among the companies that excel in all three areas, 78% are top performers, versus just 18% of companies that excel in none of the three. Let’s explore why these three areas have such a strong effect on pricing effectiveness.

Pricing to the Average Is Always Wrong

One-size-fits-all pricing actually fits no one. Yet it is not unusual for sales executives to admit that their ability to tailor prices at the customer and transaction level is rudimentary, or that they are not even aware of how much margin they make on deals.

By contrast, more-advanced companies tailor their pricing carefully for each combination of customer and product, continually working to maximize total margin. They bring data and business intelligence to bear on three variables for setting target prices:

  • the attributes and benefits that each customer truly values, and how much value is created for them
  • the alternatives and competitive intensity in the industry
  • the true profitability of the transaction after accounting for leakage in areas such as rebates, freight, terms, and inventory holding

One North American manufacturer with margins that were highly dependent on raw material pricing suffered from an undisciplined approach to pricing. A diagnosis allocated costs at the product and customer level to determine true profitability. That diagnosis, which showed the manufacturer was undercharging in many cases, provided the support needed to raise prices where appropriate in subsequent contract negotiations, leading to an average 4% increase from that opportunity alone. The company designated an executive to be accountable for related profit margin opportunities and to track the status and effect of each price increase. As a result, the company improved earnings before interest, taxes, depreciation, and amortization by 7 percentage points.

Bad Incentives Undercut the Best Pricing Strategies

Managers often criticize sales reps for losing a deal, but rarely for pricing a deal too low, so reps learn to concede on price in order to close the deal. Moreover, companies rarely reward sales reps for exceeding price targets, which means few reps take risks to push for a higher price. Misaligned incentives push deals down to the minimum allowed price.

The antidote is to align compensation with strategic goals. Incentive plans benefit from following a few principles:

  • Clarify the objectives — be they revenue growth, share gains, margin gains, or others — and the behaviors that will help meet the objectives.
  • Make it foolproof. Help sales reps understand the payout calculation, simplify the quota structures and supplemental incentives, and make the upside for outperformance meaningful.
  • Ensure transparency. Sales reps should easily see the effect of a deal’s price on their personal compensation.
  • Track the results through regular reviews that flag areas where frontline staff might game the system.

Returning to the case of the industrial goods manufacturer described earlier, the company also overhauled its incentive program to balance revenue and profit. It created a pricing tool to make the commission on each deal visible to sales reps — for instance, “If I raise the price by $2,000, I earn an extra $700.” Sure enough, reps began to close higher-margin sales. These changes led to a 7% increase in prices, which added almost 1 percentage point as part of a 3.5-percentage-point improvement in margin overall.

Training and Tools — Often Afterthoughts — Can Have a Big Payoff

Top-performing firms invest in building the capabilities of the pricing team through training and forums to share best practices. This runs counter to the norm at many B2B sales organizations, which give little or no formal training on price realization.

Further, most companies can raise their game by adopting pricing software tools. Based on the performance of historical deals, software solutions — whether in-house or from a provider such as Vendavo or Price f(x) — can provide frontline reps with real-time pricing feedback based on the characteristics of a deal under way. Using dedicated pricing software is associated with much stronger pricing decision making, our survey analysis shows. Yet despite the proven value of pricing software, only 26% of survey companies use it.

The value of developing capabilities became evident to a specialty chemical producer with lackluster margins. The company had hundreds of different products, each with different competitors, substitutes, and customer bases. Product and sales staff could not explain their pricing decisions, and often resorted to a rule of thumb summed up by one product manager as, “I estimate I can raise the price by four cents per pound.” Not surprisingly, she had raised prices by four cents per pound for four straight years, leaving money on the table.

By analyzing the various products and their markets, the chemical producer found pricing opportunities that enabled it to increase earnings before interest and taxes by 35% within two years. Just as important, the company set out to raise its game on pricing capabilities. It created forums for sharing best practices, trained product managers in doing fundamental pricing analysis, and trained salespeople on how to have better pricing discussions with their customers. New dashboards monitored progress toward pricing goals and flagged places where sales reps might be getting too aggressive, or weren’t getting aggressive enough. Finally, the CEO reinforced these measures by demanding that the product and sales teams report on pricing actions taken, as well as results, so that effective pricing remained a high priority. The company established itself as a pricing leader in its markets and continued to optimize margins, both by raising prices and, in selective cases, by lowering prices to drive the right balance of price versus volume gains.

Regardless of a company’s starting point in pricing, there is significant value in building out the capabilities highlighted by our survey analysis. The three areas discussed here have proved to be the most important for upgrading tools, resources, and behaviors. That said, companies in almost all industries have underinvested generally across pricing. The episodic “pricing project” approach leaves companies well short of full potential. With meaningful margin upside at stake, managers cannot afford to continue pricing by rules of thumb or by taking a one-size-fits-all approach to pricing across entire segments of their business.

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AUTHORS –

Ron Kermisch is a partner with Bain & Company’s Customer Strategy & Marketing practice.

David Burns is a partner with Bain & Company’s Customer Strategy & Marketing practice.

Make it easy

T

o encourage or allow someone to be truthful and blunt to you on your shortcomings, you must first lower your guard and perhaps start by sincerely confessing your weaknesses first.

A

s giving constructive feedback is not easy from even your best supervisors, Your self disclosure would infact make the other person feel at ease and comfortable in giving you a blatant opinion ; which is what you want to hear versus a feedback that is sugar coated with ambiguity and politeness.
It is a norm for many to be unable to give good constructive feedback face to face. Sadly though, sometimes, people are only great in “talking behind your back and not to your face.

Are you a great MANAGER ?

Enjoy reading the article below. I found it to be interesting. I especially liked points 1,3 and 5.

Willie

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Great bosses change us for the better. They see more in us than we see in ourselves, and they help us learn to see it too. They dream big and show us all the great things we can accomplish.

Great leadership can be a difficult thing to pin down and understand. You know a great leader when you’re working for one, but even they can have a hard time explaining the specifics of what they do that makes their leadership so effective. Great leadership is dynamic; it melds a variety of unique skills into an integrated whole.

One thing is certain—a leader’s actions are driven by his beliefs. It’s through a leader’s actions—and ultimately her beliefs—that the essence of great leadership becomes apparent.

“I am just a common man who is true to his beliefs.”   –John Wooden

Great leaders inspire trust and admiration through their actions, not just their words. Many leaders say that integrity is important to them, but only those leaders who truly believe it walk their talk by demonstrating integrity every day. Harping on people all day long about the behavior you want to see has only a tiny fraction of the impact that you achieve by believing so deeply in the behavior that you demonstrate it yourself.

Great bosses believe in their people, and this belief drives them to create an environment where people thrive. Let’s explore some of the driving beliefs that set great bosses apart from the rest of the pack.

1. Growth should be encouraged, not feared. Average bosses fear their smartest, hardest-working employees, believing that these individuals will surpass them or make them look bad. They hesitate to share information or to enable authority. Exceptional bosses, on the other hand,love to see their employees grow. They are always grooming their replacements and doing whatever they can to create leaders. Research shows that the number-one thing job seekers look for in a position is growth opportunity and that 80% of all job growth occurs informally, such as in conversations with managers. Exceptional bosses want their best employees to maximize their potential, and they know that good feedback and guidance are invaluable.

2. Employees are individuals, not clones. Average bosses lump people together, trying to motivate, reward, and teach everyone in the same way. Exceptional bosses treat people as individuals, respecting the fact that everyone has their own motivation and style of learning. Something different makes each employee tick, and the best bosses will stop at nothing to figure out what that is.

3. Employees are equals, not subordinates. Ordinary bosses treat their employees like children; they believe that they need constant oversight. These bosses think that their role is to enforce rules, make sure things run their way, and watch over people’s shoulders for mistakes. Exceptional bosses see employees as peers who are perfectly capable of making decisions for themselves. Rather than constantly stepping in, exceptional bosses make it clear that they value and trust their employees’ work and only intervene when it’s absolutely necessary.

4. Work can and should be enjoyable. Ordinary bosses see work as something that everyone has to do, whether they want to or not. They believe that their role is to make sure that their employees don’t slack off or grow lazy. They say things like, “If it weren’t for me, nothing would ever get done around here.” However, exceptional bosses love their jobs and believe that everyone else can too. They give people assignments that align with their strengths, passions, and talents. They celebrate accomplishments and douse people with positive feedback when they do good work.

5. Diversity, not like-mindedness, bears fruit, Average bosses want their employees’ ideas to align with their own, and because of this, they try to hire like-minded individuals. They encourage their employees to think similarly and reward those who “just put their heads down and work.” Exceptional bosses actively seek out a diverse range of individuals and ideas. They expose themselves and their companies to new ways of thinking.

6. Motivation comes from inspiration, not agony. Ordinary bosses think that strict rules and rule enforcement drive employees to work effectively. They believe that people need to fear layoffs, explosions of anger, and punishment in order to operate at 100%. People then find themselves in survival mode, where they don’t care about the product, the company, or the customer experience; they only care about keeping their jobs and appeasing their boss. Exceptional bosses motivate through inspiration—they know that people will respond to their infectious energy, vision, and passion, more than anything else.

7. Change is an opportunity, not a curse. Ordinary bosses operate by the motto, “This is the way we’ve always done it.” They believe that change is unnecessary and that it causes more harm than good. Exceptional bosses see change as an opportunity for improvement. They constantly adapt their approach and embrace change to stay ahead of the curve.

Bringing It All Together

If you’re currently a boss, is this how your employees would describe your beliefs? If not, you’re leaving money, effort, and productivity lying on the table. You’re also probably losing some good employees, if not to other jobs, then at least to disengagement and lack of interest

AUTHOR:

Travis Bradberry, Ph.D.

Dr. Travis Bradberry is the award-winning coauthor of Emotional Intelligence 2.0 and the cofounder of TalentSmart® the world’s leading provider of emotional intelligence tests and training serving more than 75% of Fortune 500 companies. His bestselling books have been translated into 25 languages and are available in more than 150 countries.

Do not intrude …..

Its a funny world.
Sometimes, people just want to be left alone.
They do not need your attention nor your services.
Thus, the more you do for them, the further they move away from you.
They may even find your kind gesture annoying / disturbing.
Its not that they do not care.
Nor are they heartless.
Its also not that they do not appreciate you.
It is simply that – they just WANT TO BE LEFT ALONE.
Learn when to serve and when to just watch.
When to speak and when to just listen.

Sometimes, it is best to just do NOTHING and even Ignore.

We need to respect their “space”.
#salespromoter #shopping #growingup #parents #teenagers #sensitivity

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