Of course, higher prices are not the sole reason for higher growth, nor is high growth the only reason that they were able to put up prices more quickly, but our findings do suggest that successful companies are better able to use pricing as a strategic tool to drive growth.
Furthermore, businesses that have implemented higher price changes in the past year are 40% more likely to continue investing in pricing technologies over the next 12 months. This reflects the positive results achieved in the previous year, which they clearly believe can be sustained through continued investment in pricing.
Put those findings together and the conclusions are clear: businesses which develop their pricing power capabilities can raise prices faster, grow more quickly and therefore invest more in further improving their pricing tools and strategies. In other words, the winners will get stronger and the losers will inevitably get weaker, creating a widening gap between those who can make the most of pricing opportunities and those who risk being overcome by them.
3. Align your pricing and growth strategy
The starting point should be aligning your pricing strategy with your overall business growth strategy and customer engagement goals. For example, do you want to focus on high margin customers even if it means losing market share, or keep all your customers on board to upsell a new product? Then it’s a case of building the digital insight needed to spot and slice the information sourced from competitors, customers and prospects. From this information, pricing guidelines can be put in place that will retain price discipline, while also allowing sales teams to close deals quickly.
While a pricing strategy sets the route to value, the road taken will depend on the individual nature of the business. PE-backed B2B companies in high-growth sectors such as microchips will not have the same pricing strategy as those operating in the manufacturing or packaged food industries. Firms that are leaders in their sectors and/or have a unique product will have greater scope to price according to the value of their product to customers, whereas firms without such a strong market position will have to set their prices in relation to other providers. Yet, when implementing pricing strategies, there are certain methods which can be applied almost universally:
- Understand your customers more intimately so that you know the willingness of each customer segment or even individual customer to pay more for your products. Also, find out more about the profitability of customers at a granular level, taking into account not only price but also the full cost to serve, including cost rebates, promotions and support services.
- Harness competitor and market data and intelligence to understand your positioning in the market and keep tabs on how competitors are changing their products, pricing, features and commercial terms. This will enable better decision-making in key areas, such as identifying where prices can be increased without impacting market share.
- Establish excellent pricing execution and governance. This requires a two-pronged approach. Firstly, knowing the right target price and commercial terms to offer each customer. Secondly, ensuring salespeople are fully on board with the target price and that sales leadership has clear visibility of the pricing approval process.
4. Empower pricing teams to take the lead
Our research found that those businesses where commercial/pricing teams had greater authority to set prices were more successful than those where pricing/commercial functions acted as more of a support role to sales teams which had autonomy to change prices and/or offer discounts to individual customers. High-growth B2B companies were 31% more likely to keep pricing responsibility within their commercial/pricing teams and 37% less likely to completely delegate this responsibility to salespeople. Lower-growth companies were more likely to allow their sales teams more leeway to offer widespread discounts to customers.
So, what does good practice look like? In the case of global B2B corporations, a centralized pricing team, supported by global leadership, should be able to provide the tools and insights to their teams on the ground so they can make better decisions. For local firms, the pricing policy, and in certain situations, pricing reviews, need to sit within a pricing team which supports sales rather than salespeople having significant freedom in the application of pricing, discounting and other net price dilution. But really, this needs to be a two-way partnership in which the sales function understands its role in relationship building, proposition, knowledge education, advocacy and price execution.
Meanwhile, the pricing team must understand its role in not only setting pricing policy but also providing the guidelines within which sales teams can operate and establishing platforms to regularly engage with sales to know when the market is shifting. By doing so pricing teams can empower sales teams to feel confident when executing pricing conversations with customers.
5. Don’t forget that people make prices, too
While having insightful data and smart tools is undoubtedly vital, businesses need to know how to use them to formulate pricing strategies and then execute them correctly. Historically, people in pricing roles have learned on the job. As one pricing director for a manufacturing firm said during a survey interview, “No one is a born pricer, everyone moved into pricing through finance, marketing or another role” Yet even the most advanced tools need to be operated by someone who both understands the inputs and outputs and knows how to interpret them. Therefore, companies need to invest not only in pricing tools but also in true pricing professionals, as well as training to develop existing skillsets. Furthermore, once the pricing decisions have been made, it is crucial for all stakeholders within the company to understand the rationale for these decisions and how to implement them. It is especially important that organizations’ sales teams understand and embrace any proposed changes to pricing because they are uniquely positioned to implement them successfully with customers.
- Make pricing a strategic priority to grow revenue more profitably. Leadership and middle management should drive this change within the organization.
- Take a long-term view by investing in the pricing strategies, people and governance processes needed to anticipate and respond to changing market conditions more quickly.
- Promote cooperation, transparency and data sharing between both the pricing and sales teams. This will support the shift from purely qualitative conversations to data insight-led discussions that better empower sales teams to execute the desired price changes.
- Invest in advanced pricing tools, data and analytics to cut through the noise and gain true insight into and effective execution of, price changes.