In May of this year I will be speaking at the Technology Services World Conference in San Diego on the topic of improving value and pricing performance through sales. This and the subsequent blog will highlight some of the themes we will touch on during that presentation. Here I will focus on one: Historical Analysis of Pricing Data and Operating Practices.
Historical Analysis of Pricing Performance
Historical analysis is the foundation for improving pricing performance through sales. If we are not getting the pricing performance we want from sales, then the place to start is by asking why? Here are some of the interesting findings we have discovered working with clients over the last several years.
- Sales beliefs about market rates for professional services were 30% below actual market levels
- Sales and business management used the same terminology to govern pricing, but each had a different definition for the terms, and were shooting toward different targets.
- Special promotional discounts, that expired years before, were still being used because the system governing its use had never been updated to stop them.
- Pricing controls, believed by management to be working, did not engage until 90% of discounting had already been done.
- Management believed larger customers received greater discounts than smaller customers. In fact, the opposite was true.
The key takeaway is this. The secret to improving sales effectiveness lies in understanding why they are not effective in the first place. The reasons for a lack of effectiveness, may relate to either pricing strategy or price management. The following graphic illustrates some of the issues we look for from the latter perspective.
Historical Pricing Data and Practices
When we look at historical pricing data and practices related to Price Management, here are the categories of insights we explore.
- The Controls that are in place to govern pricing behavior. What are the controls? What evidence do we have that they are working or not? Is compliance with pricing policies being monitored and acted on?
- The Capabilities of sales to capture price. Has sales been trained to negotiate value for price trade-offs? Do they have usable price menus or other tools that permit these tradeoffs in negotiation? Are proposals persuasive? Are sales and channels structured in a way that puts the right salesperson with the right skills in front of the right customer with the right offer at the right time?
- The Incentives that encourage sales not to just close the sale, but to close the sale at an acceptable margin level. What is sales incented to do? Does price achievement come up in performance reviews? When awards are given out in annual sales meetings, is exceptional pricing or margin performance recognized?
Bottom line is this. There are literally dozens of levers business managers can pull to improve pricing performance through sales. The real question is which, when pulled, will actually improve business results? Good historical analysis of pricing data and practices can answer that question and accelerate the path to better business results.