Pricing can be approached at three levels - at the industry, market, and transaction level.1. Pricing at the industry level
Focuses on the overall economics of the industry, including supplier price changes and customer demand changes.2. Pricing at the market level
Focuses on the competitive position of the price in comparison to the value differential of the product to that of comparative competing products.3. Pricing at the transaction level
Focuses on managing the implementation of list prices, which may occur both on and off the invoice.
Every business will have a slightly different approach to pricing matters – and who has overall responsibility for this very important issue within their organisation. Larger organisations may have a dedicated Pricing Department with a Pricing Manager in charge. Within other businesses this matter could be the responsibility of the Managing Director, the Sales and Marketing Director, the Commercial Director or the Marketing Department – or possibly a combined effort from several directors.
Dedicated Pricing Department
If you are a Pricing Manager you will be responsible for creating a competitive pricing strategy - and part of that strategy includes being able to effectively market your product or service to the appropriate target audience.
So, Pricing Managers are not 'lone wolfs' - but work closely with the Marketing Department to develop a strong pricing strategy that fits the industry concerned. In order to determine an effective marketing strategy, the marketing department will know everything about key demographics and how to best reach them. This department will obviously prove to be an invaluable source of information to the Pricing Manager. With their help, the Pricing Manager might discover that consumer demand will allow for a price rise without risk of losing customers to the competition – or use their consumer feedback to find ways to improve pricing strategies in general.
Working closely with the Sales Team and Product Development Team will also aid a Pricing Manager's ability to effectively market and price a brand.
Many organisations employ Pricing Analysts and their role is to help the business spend its money wisely, leading the business into profitability. They work closely with the Sales Department.
The main duties of Pricing Analysts are:
- Review business accounts to ensure accurate pricing.
- Establish criteria to achieve the best customer pricing.
- Help a company's sales force with pricing negotiations.
- Analyse contracts for under performance.
- Eliminate waste or overspending.
Cross Department Responsibility
Of course not all organisations have a Pricing Department. The role of Pricing Manager can be undertaken by a variety of personnel within an organisation. In a smaller business this matter may be the responsibility of the Managing Director. Sometimes it is incorporated within the role of the Commercial Director - or the Sales Team.
A Commercial Director will be responsible for approving contracts and driving the business forward. They cannot afford to leave any loopholes through which potential business or profit could escape. It might seem sensible therefore for the issue of prices to be the concern of the Commercial Director as they are responsible for creating business proposals and writing bids. A Commercial Director leads business development, sales, customer service and marketing teams – and pricing would seem to slot easily into this role.
Sales Directors oversee the sales operations of an organisation, manage the sales team and implement programmes to win new customers and increase revenue.
They are likely to have many or all of the following responsibilities, which all have some impact on the matter of pricing:
- Shaping the organization's sales policies and objectives.
- Determining product selling points and setting sales strategies.
- Evaluating the effectiveness of sales initiatives and rewarding success.
- Recommending product enhancements to boost sales or win new customers.
- Managing sales representatives and overseeing a team of sales managers.
- Implementing training for sales representatives.
A Sales Director also works closely with the marketing department and product development heads, who are of course already heavily involved with pricing issues.
There is no definitive right or wrong answer to where the pricing function should reside in your business. The key however, is to ensure pricing is given proper attention and focus. If it is an ad hoc process within your organisation, you're at the risk of losing margin unessearily.
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- Pricing Strategy: tactics and strategies for pricing with confidence, Warren D. Hamilton 2014
- Pricing for profit: how to develop a powerful pricing strategy for your business, Peter Hill 2013