A classic approach to get to a price target would be to study the market, your customers and the value that your products bring and combine that with volume and margin objectives. The sales process then results in a mix of wins and losses. This data on wins and losses rarely is analysed in a way that provides relevant input for the next sales cycle.
To improve the results of your sales team, we believe there are three key questions to consider:
Is there full transparency on wins and losses?
Analysis of historical data on price, margin and the latest negotiations (won or lost), enriched with characteristics of markets, customers and products, allows you to build models to optimize negotiation outcomes. While full transparency on historical performance is a key requirement for modelling, it can also indicate whether existing business rules -for example on payment terms or discount brackets- are adhered to, or not.
What is the operating system to effectively use the data the sales team generates?
Have thresholds been defined to trigger next (managerial) level discussion before accepting outliers in price or margin? Implementing a regular review of results and escalations allows for model adjustments for better targeting and supports a timely response to changing market conditions.
Are you organized to deal with changes?
When implementing a different approach to pricing in the sales organisation, will your team readily accept this? Articulating the need for change, highlighting initial successes as well as considering the potential impact on existing reward and recognition structures are some of the change management elements you should consider.
Lessons learned:
Working with customers on pricing projects we see there are many myths on the impact that customers, products or market characteristics have on a negotiated price or margin. Leveraging historical data is an effective way to learn whether the assumptions of today should have a place in the approach towards price tomorrow.
In addition, models that suggests a price range based on factors validated on historical data instead of a price point, support sales teams in the selling process.
Furthermore, understanding that the previous agreement with a customer had a particularly low price or margin in the context of similar agreements, can positively impact the outcome next time. Finally, an effective operating system serves to closely monitor results and allows to spot market trends -and a planned business response- before they become apparent in monthly or quarterly business results.
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