Pricing is at last starting to get the recognition it deserves at board level, given how critical it is to revenues and margins.

Pricing is at last starting to get the recognition it deserves at board level, given how critical it is to revenues and margins.

Over the past few years I don’t think I have met a chief executive that was not eager to improve their pricing and almost all say pricing is a top priority.

Yet despite this, I frequently talk to executives who cannot clearly articulate their pricing strategy and most admit they don’t know who on the board is accountable for pricing performance.

“In the face of higher competition and more informed and savvy customers, companies need to professionalise their pricing”

Robert Browne, KPMG

Traditionally, responsibility for pricing has been shared by marketing, finance and sales functions. However, this ultimately means that both no-one and everyone is accountable for pricing and the dialogue is shaped by various pressures, viewpoints and incentives.

The result is that companies leave value on the table and may risk being drawn into price wars – not because they have lost control of pricing but because they never had control of it in the first place.

Time for a rethink

In my view, the established functional contenders to lead pricing all struggle to do the job, so it’s time for a rethink.

The time has come for companies to take control of their pricing and the moment has arrived for a chief pricing officer (CPrO) to join the board, supported by a pricing function.

Almost all firms now have a chief procurement officer and procurement function to optimise costs, yet most fail to give the same prominence to a pricing role that could do the same for revenues and margins.

The pricing function and CPrO role would need three key elements to succeed.

First, pricing would need to work closely with, but be independent from the departments that have traditionally wielded pricing power. This would ensure the CPrO could gather relevant inputs from all departments, but also ensure decisions are not skewed by vested interests or incentives.

The second is that the CPrO would need engagement from the chief executive and chief financial officer. While chief executives cannot be expected to micro-manage pricing decisions, they need to be involved in pricing strategy and key decisions given their effect on company performance.

Investment

Lastly, companies need to properly invest in their pricing capability.

The pricing team requires some quite specialist skills: a strong grasp of customer and competitor behaviours and trends, the ability to interpret data and apply statistical techniques and model scenarios and also the ability to communicate and manage across organisational boundaries.

In the face of higher competition and more informed and savvy customers, companies need to professionalise their pricing. The appointment of CPrOs and development of pricing functions and capabilities is set to accelerate.

  • Robert Browne is a partner at professional services company and auditor, KPMG