In the face of rising business complexity and competitive pressure, many firms succumb to price pressures and enter pricing wars. Others focus on creating, quantifying, and capturing pricing power ...from their market. Since 2011, with help from Warren Buffet and Jim Cramer, Wall Street financial analysts have begun paying close attention to firms with great pricing power. But what is pricing power? How do firms know whether they have it? And how does it affect profit? This research, based on a survey of 128 organizations, identifies and validates the drivers of pricing power and its impact on firm performance. In this article, I create and validate a pricing power assessment instrument that firms can use to get started. This article offers practical recommendations for go-to-market functions on how to start the pricing power discussion, how to measure it, and how to operationalize it.
Purpose - How do pricing methods affect firm performance? From both an academic as well as a managerial perspective this question is important. The literature is silent on the relationship between ...pricing approach and company performance. The aim of this paper is to address this research gap.Design methodology approach - To address this practical and theoretical deficit, the authors surveyed 1,812 professionals involved in pricing to measure the influence of pricing approach on firm performance.Findings - The authors find a positive relationship between value-based pricing (but not competition-based pricing) and firm performance. Furthermore, the authors find that the three pricing orientations differently influence firm pricing capabilities, which in turn are positively related to firm performance. This paper is thus the first paper documenting a positive relationship between value-based pricing and firm performance through a quantitative research design.Originality value - These findings have important theoretical as well as practical implications and suggest that all firms, regardless of size, industry or geography, benefit from value-based pricing.
Purpose
Despite its increased adoption by small, medium and large firms, pricing continues to be ignored in the C-suite. C-suite executives have minimal understanding of what pricing can do and how ...it impacts a firm’s performance. After two years in the COVID-19 pandemic and the resulting economic crisis, consultants agree that the next wave of strategies and business models will require the development of strategic pricing capabilities, including analytics and software.
Design/methodology/approach
The authors conducted 49 interviews with CXOs, VPs of pricing and CEOs of pricing software vendors to understand how the best-performing companies use pricing to drive profits and select pricing technologies. Then, supported by the Professional Pricing Society, the world’s largest organization dedicated to pricing, the authors conducted a 2020 survey of 540 pricing professionals to understand the perceptions of pricing in the C-suite and how top executives prioritize pricing investments. The authors complemented their own research with analysis of publicly available data, analyst presentations and public comments by CEOs on pricing.
Findings
The authors propose a portfolio of 15 activities to include in the CEO’s strategic agenda and 10 actions to get started with in the short term. The next normal will not be based on business-as-usual. For the next three to five years, developing strategic pricing capabilities will give firms a competitive advantage over those who continue to neglect this hidden gem.
Originality/value
In the context of the accelerating economic recovery, the authors address one of the most pressing priority for the C-suite. The authors focus on a series of actions and activities that the C-suite can take to accelerate recovery and focus on profitable growth.
Despite strong evidence of substantial impact on the bottom line, most companies counter-intuitively neglect the pricing function — as do most scholars. Although pricing is gaining in popularity, ...only a few articles published in major marketing journals focus on it, and scholars have long asked how organizational and behavioral characteristics of firms affect the link between pricing practices and firm performance. To address these practical and theoretical deficits, we surveyed 507 professionals involved in account and sales management at business-to-business (B2B) firms from around the world to measure the influence of five organizational factors on sales collective confidence associated with pricing and relative firm performance. Results demonstrate that four of the five factors (pricing capabilities, delegation of pricing authority, incentive and goal systems, and knowledge before negotiation) positively and significantly influence sales collective confidence associated with pricing. In turn, we find collective confidence in the sales force to be significantly and positively related to relative firm performance, suggesting that firms that are able to design organizations and allocate resources in a way that maximizes pricing confidence can achieve superior financial outcomes. In aggregate, these organizational factors promote competitive advantage and comparative firm performance.
•The paper explores the antecedents of confidence in pricing with sales professionals.•It operationalizes the construct of organizational confidence in pricing.•It highlights the link between the sales force pricing confidence & performance.•Pricing capabilities & preparation before negotiation build confidence in pricing.
Innovations in pricing can be transformative, but to reach their potential companies must devote equal attention to technical and organizational capabilities. Most firms, however, only pay attention ...to the technical dimensions of pricing, which severely limits the success of their initiatives. To remedy this, The Pricing Journey provides an integrated guide to the organizational, social, and behavioral aspects of pricing—drawing on principles of socio-technical change. Based on extensive qualitative and quantitative research in an array of firms around the world, Stephan M. Liozu provides a practical roadmap for management teams that aim to reach a new level of pricing power.Liozu introduces the 5 C model of transformation, which relies on change, capabilities, champions, confidence, and center-led organizational design to create effective and lasting pricing strategies. Rooting his recommendations in research and practice, Liozu proposes specific capabilities to develop on the road to pricing excellence. This book prepares pricing and marketing professionals to be true strategic partners, while contributing the study of pricing transformation.
Over the past decade, more firms are adopting best practices, methods, and systems related to pricing. There is increasing evidence of pricing as a powerful lever and driver of financial performance. ...Despite this good progress, pricing as a function lags behind other functions, and many firms struggles to improve the adoption of pricing tools, methods, and systems. We survey 540 business and pricing professionals with the support of the Professional Pricing Society to investigate the influence of four organizational factors on the adoption of pricing as well as the impact of increased pricing adoption to relative firm performance. Our results highlight the positive influence of organizational alignment, cross-functional collaboration, and top championing support on the adoption of pricing. They also reveal that too much formalization in the pricing process negatively influences adoption. Finally, we find that the greater the adoption of pricing, the greater the relative firm performance.
Over the last 40 years, the pricing discipline has made tremendous progress in its organization and professionalization. More firms adopt progressive pricing approaches and invest in pricing ...technical tools. Progress has been made, but there is much more that is needed to bring pricing to the level of adoption seen in the supply chain and analytics functions. Very little is published on the level of penetration and adoption of pricing in general. In this paper, we conduct a thorough secondary research inquiry focused on assessing the level of penetration of the pricing function in global Fortune 500 firms. Our findings reveal a moderate level of penetration (22%) of the pricing function in these firms. The findings establish reference measures for future studies and provide benchmark information for pricing executives wishing to establish a pricing function and to justify greater pricing investments.
Few companies treat innovation in pricing as seriously as product innovation or business model innovation. However, after interviews with 50 executives and the analysis of pricing practices of 70 ...companies worldwide, our research suggests that innovation in pricing may be a company's most powerful—and, in many cases, least explored—source of competitive advantage. Innovation in pricing brings new-to-the-industry approaches to pricing strategies, to pricing tactics, and to the organization of pricing with the objective of increasing customer satisfaction and company profits; too many companies today see pricing as a win/lose proposition between themselves and their customers. Innovation in pricing breaks this deadlock and shows how to increase profits and customer satisfaction conjointly. As a result of our research, we present a canvas laying out more than 20 possible avenues for innovation in pricing, offering to any organization—regardless of size, industry, or nationality—a few key ideas on how to increase both profits and customer satisfaction.
CEOs uniquely shape activities within the firm. Among potential activities, pricing is unique: pricing has a direct and substantial effect on firm performance. In what may be the first quantitative ...study in industrial marketing polling exclusively CEOs globally we examine to which degree CEO championing of pricing influences pricing capabilities and firm performance. Our sample consists of 358 CEOs of industrial firms. Our results suggest that the level of championing of pricing by the CEO positively influences decision-making rationality, pricing capabilities, and collective mindfulness thereby leading to a significantly higher firm performance. This study also documents a relationship between decision making rationality and pricing capabilities (but not firm performance) thus suggesting that intuition in pricing decisions could drive firm performance.
► Champions of pricing influence the organizational design for pricing process. ► CEO is essential for the successful implementation of pricing in B2B firms. ► Pricing capabilities significantly influence firm performance vis-à-vis competition. ► Decision-making rationality significantly influences pricing capabilities. ► Pricing capabilities are operationalized as a stand along construct.
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