Rethinking Pricing Strategies in the Face of Disruption

May 17, 2016 Lindsay.Duran@zilliant.com

On May 5 and 6, hundreds of pricing professionals gathered in Chicago for the Spring Professional Pricing Society Conference. Zilliant’s Senior Director of Customer Success Suraj Mohandas was on-hand to share his expertise on rethinking pricing strategies in the face of disruption.

From the rise of e-commerce in B2B and changing buying habits, to increasing M&A and divestiture activity, to unpredictable and volatile costs swings, business complexity and the speed in which companies need to react is increasing at a faster rate than ever before.

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In a breakout session on Friday afternoon, Suraj explored the implications of these disruptive factors on pricing strategies and shared best practices to help pricing practitioners go beyond simply managing through the disruption, to actually making it work to their benefit.

M&A Implications

The infamous quote from Peter Drucker, “culture eats strategy for breakfast,” could not be more true when it comes to trying to integrate two companies. Consider the failed merger attempts of Daimler and Chrysler, and Sprint and Nextel. On paper, these deals sounded great, but in reality they fell prey to three common challenges: clash of cultures, data and system proliferation, and loss of talent and subject matter expertise.

While nothing is certain, here are some tips for a smoother integration effort:

  • Understand the DNA of the organization and set a vision for the culture of the newly combined organization.
  • Clearly define a pricing structure for the new organization. This typically requires a fair amount of data work, but it is well worth it. Specifically, companies need a robust product hierarchy, robust customer segmentation and master data standards.
  • Don’t forget about the importance of executing a change management program as part of the integration to stem the loss of talent.

Changing B2B Buying Habits and Digitization

Seventy percent of a buying decision is made before a prospect ever speaks with the company. This is primarily a result of three factors:

  • Less focus on relationships
  • Easy availability of information
  • Complex digital infrastructure

The rise of e-commerce and changing buyer expectations means that now, more than ever, sales reps need to better anticipate customers’ needs and add value in every customer interaction. Order taking behavior will no longer suffice. Companies also need to ensure that their e-commerce prices line up with other price types in a logical fashion.

Volatility

B2B companies are in a tough spot at the moment, particularly those that sell into the oil and gas industry. Prolonged deflation and low oil prices are wreaking havoc on margins as many companies seem to be in a race to the bottom on price. Figuring out the best pricing strategies to deal with cost volatility, or in this case, declining costs, is critical to ensure you can recover when costs increase again. Most companies opt for a “rocket up” and “parachute down” approach when it comes to adjusting prices in response to cost changes. While this is generally a solid strategy, most companies lack the pricing sophistication to effectively execute it.

Pricing professionals need to know exactly where, when and by how much they can change price to achieve the desired margin and volume effects. Only a sophisticated pricing tool that factors in price elasticity and gives you fine grain control over each segment of your business can help companies accomplish this.

Suraj closed his presentation at PPS on this very topic, underscoring the importance of knowing how to make well-informed trade-off decisions between volume and margin.

For more information on dealing with cost volatility and other disrupting factors, check out this post. It covers the presentation given by two executives of a traditional, family-owned distribution company on managing cost volatility at MindShare 2015. 

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