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Market v Executives: I know an old company that let the market the price decide…

May 2019 Corporate, Pricing

I know an old company that let the market the price decide…

I know an old company that let the market the price decide.
The market decision wiggled and ziggled but decided it did.
I don’t know why the company let the market decide.
I propose it will die.

I know an old company that let salespeople the price decide.
They let the salespeople price to let the market price.
The market decision wiggled and ziggled but decided it did.
I don’t know why the company let the market decide.
I propose it will die.

I know an old company that let the fleeting competitor’s price decide.
They let the fleeting competitor’s price decide to let the salespeople price.
They let the salespeople price to let the market price.
The market decision wiggled and ziggled but decided it did.
I don’t know why the company let the market decide.
I propose it will die.

I know an old company that let a single data point decide.
They let the data point decide to counter the fleeting competitor’s price.
They let the fleeting competitor’s price decide to let the salespeople price.
They let the salespeople price to let the market price.
The market decision wiggled and ziggled but decided it did.
I don’t know why the company let the market decide.
I propose it will die.

I know an old company that let ephemeral pressures price decide.
They let the ephemeral pressures price decide to counter the single data point.
They let the data point decide to counter the fleeting competitor’s price.
They let the fleeting competitor’s price decide to let the salespeople price.
They let the salespeople price to let the market price.
The market decision wiggled and ziggled but decided it did.
I don’t know why the company let the market decide.
I propose it will die.

I know an old company that let the market price decide.
Ziggles and zaggles, wiggles and tiggles, the market decided.
Decided to let it die it did.

 

Market vs. Executives

Executives are responsible for pricing.  This should be an uncontroversial claim, yet the implications of this claim appear to be lost on some.

I often hear from executives that the market determines the price.  If a company is producing a commodity traded in financial exchanges, I might accept such a claim.  But in all other situations, this claim marks a dereliction of duty.

Since executives are responsible for pricing, they should determine price expectations. This includes an expected target price and range of acceptable prices.  I generally observe the first, but the latter appears illusive to many executives.

Since executives are responsible for pricing, they decide on a periodic basis (annually at a minimum) on the price target and decide to adjust the price targets as exigencies demand.  Notice the word “decide”. If prices are being adjusted, this is an executive decision.  As an executive decision, it needs the input and agreement of sales, marketing and finance.  Unfortunately, I generally observe unilateral decisions by sales when it comes to price adjustments.

Since executives are responsible for pricing, they should dynamically adjust prices only be in response to strategic actions of peer competitors.  This implies that executives identify a distinct set of peer competitors to monitor and identify which competitor’s price moves can generally be ignored.  It also implies that executives distinguish between spot or short-term competitive price promotions from strategic price changes.  I generally see prices change in response to market moves, but too often the rumor of the flap of a butterfly’s wing is enough to drop prices.

Since executives are responsible for pricing decisions, they should have access to thick business intelligence to inform their decisions.  By thick I am referring to the use of multiple pieces of information, not a single data point.  This includes multiple forms of market research, deep understanding of competitive offerings, observations from machine learning, internal beliefs and tribal knowledge, competitive and customer intelligence, costing and cost drivers, and many other pieces of information.

These multiple information sources are needed precisely because none of them are like to agree with any other perfectly.  In the absence of a singular measurement that accurately predicts the future behavior of customers (a chimera at best), executive decision making must be made in the context of multiple competing sets of information.  Yet too often I hear executives demand a specific form of information be gathered, then they apply that singular information point to drive a decision which may override all other evidence to the contrary, followed by a complaint that the information was bad.

While executives are responsible for pricing decisions, they should delegate the task of collecting and disseminating the needed thick business intelligence.  I often hear an executive call for information but less often observe the people, processes, and tools to gather, maintain, and refresh said information.

And, since executives are responsible for pricing, they should define the organizational structure through which they make pricing decisions, the routines they use to alert them of decision opportunities and inform said decisions, and the culture they wish to foster regarding pricing decisions, be it about revenue gain or profit gain.

Yet too often, I hear that pricing is just a function of the market.  Oh, what a squandered opportunity for executive leadership.  Pricing is a decision under executive control. Sometimes the price is not what the market will want, but it is still a decision executives must make even if the decision is to let the market go.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
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