Following are three critical, but commonly missed, lessons to realize price increases:
1. Hold customers accountable for what they promised.
Track, diagnose and manage customer compliance against contracted or good-faith metrics that drive preferential pricing and incentives (e.g., sales, share of wallet, product mix). Noncompliant customers undermine strategic pricing and margin realization efforts and could be a signal of larger underlying issues.
- Let’s start with the basics. Identify and address data quality issues that undermine pricing effectiveness, including multiple sources of truth, overstated and understated pricing metrics across functions, and lack of access to accurate data.
- Data stewards, armed with governance rules, can drive consistency and accuracy at the right level of granularity, which is important for differentiated pricing and overall execution. Lack of access or trust in quality data is a common reason that organizations opt for broad-brush pricing.
- Investing in building or buying technology solutions for compliance tracking and alerts can also be effective for sustainable price improvements, especially for large organizations with complex volume-based tier discounts or rebate contracts.
A full-service environmental contracting company observed variations in discounts across sales representatives and customer types. Though the company had processes to approve discounts at different levels, there were no workflows or systems in place to track policy compliance. EY-Parthenon teams designed a new discount approval and deal desk process and built a tracking dashboard by customer size and sales representatives to confirm compliance with the new discounting policy. Over a 12-month period, the company improved gross margin percentage by ~250 basis points (EBITDA improvement of $10+ million and $450 million in sales) while maintaining a similar win-loss ratio on potential accounts and growing revenue.
2. Take the time to discuss benefits of change to salespeople and the commercial organization and provide turnkey insights.
Your salespeople’s conviction in headquarter pricing decisions can make or break how well your new prices are achieved in market. Promote an agile culture and communicate the benefits of differentiated pricing to sales teams and throughout the entire organization.
- Develop a top-to-bottom change management plan for the organization to drive behavioral change. Without these, even ambitious pricing initiatives can give way to bureaucracy and prompt a return to legacy processes.
- Empower sales teams with the right insights, data and incentives to hold margins. Curating targeted playbooks (e.g., deal renewals or noncompliant customers) in partnership with the pricing function can be helpful to support better deal execution and manage erosion.
- Effective communication is also a vital tool for deal negotiations and account retention. Best-in-class organizations educate and train their sales force to clearly articulate their value proposition to customers.
A global beverage company looked to gain better transparency and improve return of its price support investment. EY-Parthenon teams designed, developed and implemented a new cloud-based analytics tool across 10+ countries to measure promotion effectiveness. The change management team was established six months before go-live. Salespeople were involved early on to influence the output and user-interface designs. To give salespeople the comfort that the return on investment (ROI) insights would drive better results, the training program included a data science overview, multisession user training, proof-of-concept working sessions to deep-dive in select brands and markets, and monthly review post-go-live. Instead of running the same promotion events year after year, sales teams leveraged the ROI insights to take out unproductive events and adjusted brand size or discount levels in their promotion calendars, resulting in an improvement of 0.11 basis points.