The True Value Of Pricing From Pricing Strategy To Sales . - Deloitte

The True Value of PricingFrom pricing strategy tosales excellence

The True Value of PricingThe challenge of value in pricemanagementThe world’s current political, economic andsocial scenario poses major challenges,including the political uncertainties broughtby the intensification of nationalist speechesand the increase of barriers to foreigntrade. On the business side, the economicrecession has affected organizations which,in order to continue to optimize earnings,need to take into consideration drivers suchas Gross Domestic Product unpredictability,high inflation, interest hikes and fiscaladjustments, besides unemployment growth,and the customers’ higher indebtedness andreduced income resulting from that.At the same time, the integration of thedigital world into the business environmentcontributes to producing a new consumerprofile: more connected, mature andinformed about their own habits. Thesechanges create new opportunities for thecompanies to develop a more agile andcustomized communication with their clients.In this context, price management becomesa powerful advantage to guide organizationsthroughout the changes, to boost theirperformance and to maximize their earnings.With regard to strategic alignment, theconcept of Pricing is particularly relevant inthe business world as it consolidates itselfas a charging practice intended to capturethe highest value from each customer byaddressing issues from strategy to salesexcellence, and aimed to maximizingprofitability.“The True Value of Pricing – From pricingstrategy to sales excellence” presentsdata about how companies from differentareas manage and position their prices inthe current economic scenario. The studyalso shares an analysis based on Deloitte’sexperience to strengthen the importance ofpricing strategy and help companies to meetmarket demands with more efficiency.In order to define a pricing strategy alignedwith the organization’s goals, the Pricingfunction must take into consideration notonly economic trends but also productdifferences and specificities in consumerhabits in each region. This is the case of theend-of-the-month discount policy, quitecommon in the Brazilian market, and thathas a direct impact on the pricing and themargin of each product.Even though many organizations see Pricingas a back office function, there is a trendin Brazil to boost its importance and itsreach from a strategic point of view, whiledifferencing customer segments. In otherwords, this approach goes beyond thetraditional cost and competition analyses.The concept of Pricing is particularly relevant in the businessworld as it consolidates itself as a charging practice intended tocapture the highest value from each customer by addressingissues from strategy to sales excellence, and aimed tomaximizing profitability.2

The True Value of PricingAmong the main strategies, pricing basedon the customer perceived value fora product or a service is gaining moreattention from global organizations’executives in recent years. However, ouranalysis shows that this trade isn’t largelydisseminated in the Brazilian market yet.Most of the organizations operating inBrazil set their prices based on their fixedcosts, their margin and the competition’sprice. While intuitive and easy to apply, thispractice does not take into considerationthat the same product or service bringsdifferent benefits for each type of customer.In this sense, by taking into considerationa customer’s value perception and offeringa product or service that contemplatesthe needs of each profile, good Pricingpractices open the door for the right priceto the right customer strategy. On theother hand, this reality requires a morecustomized approach from organizations,which, in order to keep up with the businesstransformations and grow sustainably at thesame time, must look into what customerswant and adjust their segmentations toexpand their profits.The economic and monetary stabilitythat Brazil has acquired over the past twodecades not only created opportunitiesfor more strategic pricing policies incorporations – as it was no longer necessaryto adjust prices according to the fastgrowing inflation rate each month – but italso contributed to the development of anew consumer.Table of contentsWhat is Pricing?4Organization’s structure6The costumer perceived value6The right price for the rightcustomer7Price segmentation7Pricing practices and experiences8Sales force compensation8Pricing policies documentation9Price management in the digitalworld9Pricing trends10Contacts11Survey sampleThe analyses presented hereinwere prepared based on the marketexperience of Deloitte’s Pricingpractice professionals and quantitativeinterviews with 58 organizationsoperating in Brazil from the mostdifferent sizes and segments.The organizations participated viaan electronic questionnaire that wasavailable from November 2016 toFebruary 2017.3

The True Value of PricingWhat is Pricing?The concept of Pricing, which is still rathershy in the Brazilian market, is becomingmore relevant in the business world as itconsolidates itself as a price execution andcharging practice intended to capture thehighest possible value from each customersegment.Six key pillars structure this function,comprising from strategy to salesexcellence, in order to seek the highestprofitability:PricingStrategyAn efficient strategy reflects an integratedpricing structure that supports businessgoals by capturing the value of an offercompared to the competition and tocustomer demands, and by targetingthe organizations’ internal drive and itscommunication to the market.Advanced analysesand pricingPerforming advanced analyses allowsorganizations to revisit past transactionsto understand and optimize the pricescharged, thus improving profitability.Technology anddata managementTechnology contributes to analysisautomation and prices performanceexecution and optimization. Organizationsare increasingly seeking ways to integratethese tools into their technologicinfrastructure to ensure that the upgradesimplemented by the management aresustainable in the long run.4PriceexecutionThe processes based on which acompany sets and charges its prices anddiscounts. A correct execution ensuresthe consistency of Pricing actions thuscollaborating to the dissemination of clearprice communication, execution, analysisand adjustment policies.Corporate governanceand alignmentWell-structured governance, integratedwith all company functions and alignedwith the organization’s strategic goals,ensures a more effective and continualprice management.Tax and regulatoryeffectivenessTax laws can influence the way anorganization conducts its business indifferent ways, including how informationis captured in an invoice, where goods’ownership is transferred to customersand how contracts are negotiated andperformed.

The True Value of PricingPricing operation modelsPrice management provides a structure tosupport business goals by capturing thevalue of an offer compared to competitivealternatives and customer demands.CentralizedOperationUnderstanding the market dynamics,based on the analysis of customer profiles,product nature and distribution strategies,is the key to designing a framework for thePricing function that can be organized intoseveral levels, from a fully centralized modelto a fully decentralized model.ImplicationsThe Pricing functionsets the prices forall products, aswell as the policiesthat the sales andbusiness functionsmust apply – inalignment with thewhole company.Fewer resources;More executive and leadershipsupport;Centralization of resources for allbusiness units;MaturityAn integratedapproach tosupporting goodPricing practicesThe interaction between the Pricingpillars contributes to a higherability of the function to createand capture sustainable results,strengthening the competitiveadvantage in an increasinglydynamic market.Unified methods, language, andrevenue management in the entirecompany;Less autonomy for sales andbusiness functions.PricingstrategyThe Pricing functionmakes analyses andrecommendations,supporting thesales and businessareas, which remainresponsible forsetting the final pricebased on each unit’srealityAccess to resources establishedby the core Pricing functions (e.g.:statistics);Corporategovernanceand alignmentAdvancedanalysesand pricingTechnologyand datamanagementThere is no Pricingfunction; the salesand business areashave their ownrepresentatives tomanage pricing andto develop salespoliciesTotal autonomy for the sales andbusiness functions;Unified language and revenuemanagement throughout thecompany;Need for additional resources;Potential for non-unified methods.Need for more resources;Less alignment between the salesfunction and the business functionMethods, language and revenuemanagement are not unified.Decision-makingDecentralized5

The True Value of PricingOrganizations’ structureThe challengeIn Brazil, due to the market’s maturity leveland the organizations’ lean structure, thecompany’s Pricing functions are commonlylinked to the sales, finance and marketingareas. This could contribute to corporationsaiming a sales increase based on volumeand sales targets rather than on profitability.Furthermore, a process that is not widelydisseminated by an organization can resultin failing to follow through with decisionsmade by the team in charge of pricingmanagement.Good Pricing practicesAn efficient pricing strategy suggestsmore control and more agility inthe decision-making and in fightingcompetition through the alignmentof the main stakeholders. Havinga function responsible for prices,integrated with other functions suchas sales, finance and marketing, andaligned with the company’s strategicgoals, is the first step to establishinga management framework capableof maximizing profit from goods orservices.The costumer perceived valueThe challengeAs a way of optimizing results, the Pricingstrategy is key to making the connectionbetween a company’s long-term goals andthe tactical plan put into practice by thesales force. However, many organizationsoperating in Brazil still strive to structurethis function and to align it with its businessgoals. Despite the growing importance ofthe consumer’s role for the Pricing strategy,the survey conducted by Deloitte withorganizations operating in Brazil indicatedthat competitors’ prices are still the mainfactor analyzed when making pricingdecisions. This behavior of prioritizing thecompetition can trigger guerrilla strategiesin the market, drifting away a consumerfocused practice.6Most analyzed market data for Pricingdecision-making (among the survey’srespondents)Competition priceDemandsSupplySource: Survey conducted by Deloitte (2017)Prices are differentiated by (among the survey’srespondents)Product linesMarkets/GeographiesSales/Distribution channelsTypes of customer/SegmentationGood Pricing practicesCost, profitability and competitionare major factors for a strategic priceanalysis; however, the concept of valueis the key to defining the consumer’stendency to buy a product or a servicefor the stipulated price. Organizationscan still improve product differentiationpractices using customers or saleschannels segmentation. When acompany acknowledges that a sameproduct or service can bring differentbenefits to different customers, itperceives the supply and demand curvein a broader sense and thus enhancesthe potential of its profitability.