Take our survey to see your organization’s stage of pricing maturity and learn the steps you can take to improve!
There is no doubt that pricing drives competitiveness and overall business performance.
By answering the following six questions Vistaar can help you determine your organization’s stage of pricing maturity and what steps you can take to improve pricing processes and practices within your organization.
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After reviewing all possible responses select the one that best describes your organization.
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Currently your organization is in the “Basic” or formative stage of pricing maturity. A single, functional organization structure is in place –– all pricing is vested in a single organization and knowledge sharing and coordination with others is limited. The pricing objective is simple –– maintain a specified overall gross margin %.
There are many ways your organization can begin improving its pricing processes. First, recognize the profound effect prices have on market performance and ultimately on long term growth and sustained profitability -- all of which are strategic imperatives for a company. Begin the journey to pricing maturity by establishing overarching goals that balance short-term financial objectives with market performance.
While the classic cost–plus pricing technique that Level 1 companies use may provide excellent control over %-gross profit, in a market where there’s competition or significant demand elasticity the method provides poor control over total profitability; therefore more advanced techniques are needed. When setting prices, distinguish between low and high intensity competitive environments and then price accordingly. Competitive intensity does correlate with price sensitivity and can serve as a basic first step in price segmentation.
If you are interested in learning what other specific steps your company can take toward pricing maturity, please contact Vistaar’s pricing specialists at 973-434-6196 for a discovery call.
Currently your organization is in stage two, the “Emerging” or developing stage of pricing maturity. While there are some pricing processes and methodologies in place, they are still Excel–based and as such may well be inconsistently applied across users, products, geographies, channels, etc. Propagation and coordination of pricing plans and knowledge with other departments may be limited. Pricing is still at a tactical level and not yet used as a strategic driver.
External research findings, including customer and competitor research, if available, are used at this stage. This additional visibility into the market reveals market threats and opportunities and what price positioning is needed to maximize competitiveness. If competitive data is not available, alternatives such as analyzing patterns in special price requests from customers can reveal indications of competitive activity and pricing. Vistaar can suggest a variety of alternatives.More can be done to advance to the next stage. While competitiveness is being tracked, how they respond to your pricing moves is not; price leadership is crucial input for decision making. Furthermore, the common assumption that achieving both higher profitability and higher market share is not possible is not correct. Look for opportunities to improve both.
Also, recognize that price maturity entails more than setting list prices. In the next stage of pricing maturity, stage 3, companies gain additional benefit from well-managed price execution processes. Discount guidelines are established to guide and control pricing execution activity by field sales. Results are tracked and success is rewarded by linking achievement with commissions. As a start, imposing simple price enforcement ranges (floor and ceiling levels) will produce benefits. Then, vary the guidelines applied to each customer segment. Reducing the scatter in negotiated prices raises ASP’s (average selling prices) and increases revenues.If you would like to further understand specific recommendations your company can take toward pricing maturity, please contact Vistaar’s pricing specialists at 973-434-6196 for a discovery call.
Your organization is at stage three, the “Formalized” or defined stage of pricing maturity. At this level, pricing guidelines are maintained for field sales execution. Elasticity-based pricing methods, such as bid-optimization and others are being used. Win-loss data is saved and applied. The best technique for setting list prices is used as each situation warrants.Competitor and customer responses to pricing moves are tracked and assessed; and, pricing strategy refined accordingly. Price leadership situations are identified and exploited. While products and services are differentiated based on qualitative features and benefits, the metrics concerning customer value are limited; so value-pricing is not possible at this intermediate stage of maturity.
Product differentiation is the second dimension for price segmentation. Knowing which products have advantages relative to the alternatives on the market is the start for value-pricing; it enables positioning accordingly. It’s essential that differences in products, services, and bundles versus competitor offerings are normalized so that apples-to-apples comparisons can be made. Pricing segmentation may be an important element in the pricing process but it is not yet executed to its fullest potential.
Many organizations find themselves at this stage and want to know how to make leaps into the next stage of pricing maturity. Many manufacturers adopt product team structures because they are considered more effective than traditional functional structures. Fewer “silos” results in better internal cross-functional communication and coordination between teams. Some companies have adopted a matrix structure, having a pricing manager provide strong functional guidance across the product teams.If you would like to receive specific recommendations for how to move to the fourth stage in the pricing maturity process, please contact Vistaar’s pricing specialists at 973-434-6196 for a discovery call.
Currently your organization sits in the upper stratum of the pricing process –stage four, the measured and managed stage of pricing maturity.Pricing is a collaborative effort across the organization with strong functional guidance provided across product teams. Globally, the right balance is struck between centralized and de–centralized activities. Your organization understands the impact pricing goals and initiatives can have on your business. Pricing processes are determined not only by customer behaviors, but value–based initiatives.
Analytics are used for more than reporting the results of past transactions; they are also used for modeling the future –– the effect of simulating different pricing scenarios in order to select the best alternative. Simulations and what-if modeling requires special tools and training, such as those offered by Vistaar. Comparing similar products at different stages of their life cycle enables better anticipation of forthcoming market changes such as higher competitive intensity, loss of price leadership, and rising price sensitivity. This is critical input for price and product portfolio planning.
Customers are grouped for pricing purposes based on their shared purchasing behaviors and values, which can vary a lot, not just simplistic demographic similarities (i.e. industry, size, location). Through the use of cluster analysis, a sophisticated statistical/ mathematical method for analyzing past behavior, Vistaar helps clients determine what matters most and the most relevant groupings for pricing.A combination of techniques are used to manage portfolios of products / services across their life cycle –– optimizing their relative prices and anticipating changes to market dynamics, such as elasticities, as each stage progresses.
Companies in this stage of pricing maturity are well on their way to the next level. Prices have a profound influence on achieving financial, marketing, sales and supply chain goals. For this reason, at the most advanced stage of maturity and organizational development, the management of prices is kept close to the P&L manager of the business.If you would like to learn specifically how Vistaar can help your company achieve pricing excellence, please contact Vistaar’s pricing specialists at 973–434–6196 for a call and demonstration of our solution
Your company represents the stage of pricing maturity that most others strive to attain. Internally, pricing is widely accepted and recognized as being essential to the achievement of broad company objectives encompassing finance, product marketing, sales, and supply–chain. As such, pricing is given high visibility across entire business unit and to the P&L manager. There is abundant two-way information sharing and coordination with all stakeholders, including senior management.
Price segmentation is built on a foundation of 1) shared customer price sensitivity / willingness to pay, 2) product value differentiation, and 3) competitive environment. Prices and promotions are balanced in an optimal fashion to achieve the maximum combined effect upon volume and profitability.Price elasticity is used to help manage manufacturing backlogs and limited shelf–life stock. Competitive research data is used widely for price setting, price execution, and, as a key metric for analytics. And it is used to help manage the other side of the profit equation –– cost prices – by serving as the basis for setting target prices for negotiation with suppliers. Successful cost negotiation means being able to set competitive selling prices while earning a normal margin.
While you are well positioned for success, there is always room for improvement. If you feel you are ready to move forward, why not define a small pilot program – perhaps a single product line or category. Then measure improvement against a control group that is not using the technology. Showing the metrics, and comparing the results of the new process to the control group will yield a clear measure of the value, which can then be used as the basis for a go-forward decision. If you are interested in jumpstarting the pilot process or learning more about how Vistaar can help your company achieve pricing excellence, please contact Vistaar’s pricing specialists at 973-434-6196 for discussion on next steps.
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