Pricing is a process – Get it right and make it lean!

20150710 Retrospective by Didier BENNERT

On June 24, the Marketing & Sales Club hosted a conference on the topic of “The New Efficient Frontier in Pricing”.

About 70 alumni attended presentations made by Dr. S. ROTHENBERGER, Professor at the SBSEM, as well as Channie MIZE and Nicolas MAGNETTE, from Periscope, a McKinsey Solution.
“Pricing isn’t hard. It’s a process and it should be lean”
Dr. Rothenberger reminded us that, from all marketing levers, pricing is a very flexible one with the highest short term impact potential. A 1% price change can generate an average 11% increase in profit. It is still the first buying criteria and an important marketing signal.

Pricing tactics have evolved from traditional company-imposed approaches (fixed price…) to more collaborative pricing (dynamic, auction) and even customer-imposed pricing, as in the famous Radio Head “In Rainbows” album release. To adapt to this new reality, she suggests we ask ourselves two questions: Does our pricing strategy provide us with a competitive advantage? And is our pricing process one of our core competencies?

She recommends that we make the pricing process a lean one, with the objective of creating and capturing more value from/to the customer, and building prices upon value rather than on costs and competition prices. This obviously requires to measure the customer value we create. As an example, she refers to the launch of Coke Life. An in-depth customer analysis helped identify that consumers valued the Stevia health impact to the point that they would be willing to pay 8c more per can, an 11% benefits-based price premium.

Read the presentation by Dr. Rothenberger here.
“Get started and keep going!”   
N. Magnette and C. Mize confirm the powerful nature of the pricing lever, pointing out to the ability to get impact already in the short term, but, especially, huge rewards in the long run. This is, however, a long and difficult process of capabilities development. They therefore recommend to get started without delay. And to keep moving.

You’ll need to build a supporting coalition and to assemble a dedicated team. Clearly, one of the key elements is to create full transparency on your profitability, taking into account every single “cost to serve”. Big data and advanced analytical tools will help you there. But don’t get stuck on waiting for perfect data. You need to shift the balance from 100% Art to 70% Science. Human judgment will always matter, but can be improved with better facts and insights.

Their final advice is to get expert help… You know who to call, right?

D. Bennert - Synthesix
Suggested reading: “The Strategy and Tactics of Pricing: A Guide to Growing More Profitably” by Th. Nagle, J. Hogan and J. Zale, Prentice Hall

Additional material
The New Efficient Frontier in Pricing - Periscope by McKinsey Solutions
The New Efficient Frontier in Princing - Additional materials by McKinsey Solutions
Marketing & Sales Club