t ra t e g y

i c i n g s
p r n t a t i o n
p l e m e
im pri c ing a nd c os ting module 11
 THE PRICING
PYRAMID
A comprehensive pricing strategy is comprised of many layers
creating a foundation for price setting that minimizes erosion and
maximizes profits over time. These layers combine to form a
strategic pricing pyramid. Value creation forms the foundation of
the pyramid. A deep understanding of how products and services
create value for customers is the key input to the development of
a price structure that determines how your offerings should be
priced.
PRICING
• Pricing is the single greatest lever you have to
improve profitability, and your profits will
increase further when you price strategically.
Strategic pricing is about proactively creating the
conditions under which better and more-
profitable pricing outcomes are the natural result.
strategic PRICING
• Strategic pricing sets a product's price based on the
product's value to the customer, or on competitive strategy,
rather than on the cost of production. This approach
recognizes that people often make purchasing decisions
based more on psychology than on logic, and that what is
most valuable to the customer may not be what's most
expensive to produce.
 SIGNIFICANCE OF
STRATEGIC PRICING

What customers are willing to pay for a product may be vastly

more, or less, than a company would charge if it simply priced
based on cost. Discovering what consumers value about your
product can allow a company to increase its price – or,
alternatively, might even suggest that a new product has no
chance of being profitable.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

1. Make price strategy a top management priority

It is crucial to have board-level awareness on the importance of price and a good pricing strategy, as
well as sufficient support for optimization. Firstly, you need management buy-in to regularly
emphasize the importance of pricing towards the entire organization. Secondly, the management
needs to set direction and define clarity on positioning and price levels. Moreover, top management
needs to be involved in the price strategy to create a profit-oriented culture where price wars are
nevertheless avoided.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

2. Set an ambitious pricing roadmap with a phased roll-out

A successful price strategy implementation needs measurable goals that lead to a

clear goal. In order to achieve this, take a differentiated view on pricing and
identify which pricing topics impact the bottom line.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

3. Select an experienced pricing manager to drive change

Executing a pricing strategy will require intensive coordination between internal

departments. Therefore, a seasoned program manager is needed to oversee
implementation of the roadmap.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

4. Embed the new price structure in concrete tooling and systems

While pricing typically is based on gut feeling, most price optimization projects
result in a structure or a process to support decision making. This could include
peer comparison to compare performance within the sales organization or price
driver analysis to evaluate the balance of power in a specific situation.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

5. Define clear governance and responsibilities

Responsibility for pricing is often divided between different functions and

departments. This leads to limited ownership and suboptimal pricing decisions.
Pricing responsibilities range from sales, marketing and product management to
finance functions, depending on the industry.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

6. Train your salesforce and prepare your customer communication

Pricing projects are often tougher to sell internally than externally. Involving
sales at an early stage, training them and clearly showing the benefits of the new
structure is crucial. Your sales force needs to believe in the pricing structure and
be able to explain it to customers.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

7. Define KPI’s, monitor results, and steer accordingly

Even though it is often overlooked, defining KPI’s and measuring results are
key to track implementation progress. You will not be able to measure
everything from day one.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

8. Communicate early results to a broad audience

Price optimization is complex, so be prepared that implementation will not

happen overnight and input from sales will probably be required. To gain and
sustain sufficient buy-in for the new price structure, it is critical to signal
(positive) results to a broad audience within the organization.
 p l e m e n t Yo u r P ri c i n g St ra t e g y
9 M u s t - Ha v e s t o I m
Successfully

9. Start small and drive continuous improvement

Implementing a new price strategy can have a significant impact within the
organization and requires changing existing processes and a new way of
working
 what it takes to
succeed
• Price implementation projects are complex and not always clear-cut.
Therefore, you should approach a price implementation project as a
marathon, not a sprint. To have significant impact on the results,
preparation is key for a successful implementation. Applying these nine
must-haves to your specific case will be the right start to successfully
implement your pricing strategy and will enable you to reap the profits
of your price strategy.
 NK YO U!
T HA