Why Pricing Professions Fail to Rise Above the Manager Level

According to research by George Boretos, there are roughly 10 pricing managers per 1 pricing decision maker.  Four major issues have been identified that keep a pricing career at the manager level.  Many of them require a pricing professional to level up.

These are

1. Unable to communicate at the executive level

2. Misconception of pricing as a part of another domain

3. Pricing subject matter expertise remains at the generalist level

4. Insufficient accountability and responsibility

Which of these are you guilty of? 

Unable to Communicate at the Executive Level

Executive communication is like writing up a good business case study in an MBA program or doing an A4 presentation.  It begins with a challenge statement, a statement that defines the question or the problem you are addressing in the communication.  It is followed by a recommendation, a statement of what decision or actions should be taken to resolve the challenge.  The challenge and recommendation statements are short, no more than two sentences long each.  This is followed by an analysis of the challenge, the potential solutions, including the recommended solution and its alternatives, and then clarifies why the recommended solution is the best course of action.  Any detailed calculation or set of tables can be included in an appendix to be read only by those most interested or doubting the quality of the analysis.

Instead, managers tend to deliver long papers like a mystery novel, where the conclusion is at the end.  Or worse, they deliver a PowerPoint stuffed with facts which everyone knew beforehand and draws no new argument to attention, then ends with a declaration as if no discussion is needed.  If a discussion isn’t needed, then why are you spending people’s time reading your analysis or listening to your PowerPoint?

Repeatedly, even well-educated and experienced professionals are unable to deliver the concise and complete communication required for executives.  What time-crunched multitasked CEO would ask such a person to join her in the C-Suite?

Misconception of Pricing as a Part of Another Domain

Pricing is a unique domain.  It isn’t finance, marketing, sales, or operations.  It is its own knowledge and skill domain.

Unlike the other marketing levers of product, promotion, and placement, which seek to create value, communicate value, and make the value accessible to delight the customer, pricing is about taking the company’s fair share of the value created from the customer.  Pricing requires a different mindset from the other aspects of marketing.

Along this line, price segmentation is different from other forms of market segmentation.  Most market segmentation focuses on clustering customers by needs, communication accessibility, firmographics, demographics, or geographics.  Price segmentation, however, groups customers by the price a company can extract from them compared to some standard.  Price segmentation variables of interest generally do not match product or other market segmentation variables at all. 

Most accounting tracks historical performance.  Pricing is generally examined as the average selling price (ASP), and many finance professionals like to work with one general ledger.  Unfortunately, the ASP is not the most useful metric for pricing, nor are all the details of past pricing.  Pricing is about predicting the future price performance, the future potential to capture price.  The ASP of the past is likely to include returns and free samples, neither of which reflects the price a salesperson should capture in the future.  As such, the dataset used in pricing generally strips out all returns and free samples to predict the ASP salespeople should capture in the future. The relevant predicted pricing ASP and accounting ASP will be different. 

Moreover, pricing has an inclination to focus on profits as measured in actual currency, while finance likes to think in terms of margin percentages.  While understandable, this leads to very different goals.  For instance, a company using index-based pricing or reacting to tariffs may seek to ensure profit dollars earned remain predictable, even though the margin percentage will fluctuate due to changes in the index or tariffs.  This might drive some finance people mad, yet investors do enjoy profits measured in currency.

And pricing is not costing nor cost accounting.

Pricing and sales?  (1) Pricing looks at the market, while salespeople generally look at the single customer they seek to close. (Rightly so..) (2) Pricing uses math and AI to predict what a good, expected, and poor price on a given transaction, product, and customer would be, while sales tend to be not so mathematically inclined.  (3) Pricing tends to focus on profits while sales tend to focus on revenue.

Yes, I understand why the VP of pricing tends to report to the CFO, CMO, or CCO.  The CEO cannot have hundreds of direct reports.  But the VP of Pricing, who may play the role of Chief Value Officer or Chief Pricing Officer, must accept that they are the oddball in the group and help the group understand the pricing mindset and methods.  

Pricing Subject Matter Expertise Remains at a Generalist Level

Pricing expertise implies an understanding of the ten foundational pricing structures, the best research method for price setting, and the means to measure and quantify price variances to inform commercial policy.  It implies understanding the benefits and limitations of Economic Value to Customer, van Westendorp PSM, Gabor Granger, and Conjoint.  It requires examining promotions beyond customer acquisition costs and return on investment to include Break-even Incremental Sales.  It needs to construct and examine price waterfalls, price to continuous market variables, and price capture versus discrete market variables, all leading to an AI model predicting price capture.  It means knowing when to use and avoid unit, versioning, bundling, two-part tariffs, tying arrangements, subscriptions, consumption, yield management, index-based pricing, and supply-demand matching.  And it implies having an applied framework for managing product lifecycle pricing, price competition, and economic shocks.

Pricing expertise means knowing a lot of things about pricing specifically.  This is not in the normal MBA course of study, much less in an undergraduate major.

Many experts have read Pricing Strategy by Smith or Revenue Management by Phillips to learn the field.  If you haven’t and you want to be a pricing expert, you should or risk looking uninformed.

And pricing experts don’t treat pricing as part of their professional rotation. They become actual experts in this field. No one can expect to become an expert in pricing in a two-year rotation.  It takes a career.  Experience counts.

Insufficient Accountability and Responsibility

What is pricing responsible for?  How does price performance get measured?  How should a company measure pricing capability and individuals within the pricing team?  And what is the result of having a strong pricing capability?

You may say “pricing”, but what part of it? Does product and marketing set prices or pricing?  Does the sales team have the final say on deal prices, or does pricing? Does pricing manage price execution, or is that an accounting, ERP, CRM, or POS issue?  And who defines the price structure, or when it will change? 

Pricing should own all of these questions and manage them with the broader organization. Companies require agreement between actors on decisions if those actors are to take them seriously.  But pricing should have a strong voice on each of these questions.

Price performance should be measured.  Accounting variance analysis, also known as a Price-Volume-Mix Analysis, helps in measuring price performance.  Yet the attribution to profits due to pricing and mix changes also needs a story to explain why the results are attributable to sound pricing decision-making rather than luck or macroeconomic events.

Other forms of analysis can be done as well.  For instance, when pricing a new product, pricing can start with the other managers' expectations of volume, price, and cost as a benchmark and compare it to the results of their independent research. Or when managing price variances, it can examine the frequency of exceptions, improvement of profit, or win/loss rates as related to price guidance delivered. 

Price performance can be measured. 

As to measuring the strength of pricing capability, we must first define what good pricing delivers.  Good pricing enables the company to capture its fair share of value delivered to customers predictably, across economic, competitive, and industry turbulence, to enable executives to make better decisions. 

Which returns to the first issue:  be able to communicate at the executive level and inform decision-making.

Postlude

Yes, most organizations ignore pricing until there is a crisis.  And, pricing professionals are responsible for driving a change in the mindset of the importance and function of pricing.  Rise to the occasion and drive seniority for pricing in your organization.  You can do it.