Pricing is at the Intersection of Strategy and Execution

Pricing is at the intersection of strategy and execution

It is an age old question: which matters more – strategy or execution? While it is often hotly debated, we think it is a silly question to begin with. To us, strategy and execution are like two peas in a pod. We agree with Morris Chang, CEO of Taiwan Semiconductor, who said, “Without strategy, execution is aimless and without execution, strategy is useless.”

In our experience, the easiest way to determine whether a company’s execution is aligned with its strategy is by looking at its pricing and margins. Uneven or shrinking margins are often a sign that a company is not executing effectively in the markets and customers it serves and does not have a clear picture of the position it occupies in the market. In the race for growth, we see many companies trying to be all things to all people. They do not maintain the discipline required to focus on specific customers and markets where they can capture the margins dictated by their strategy.

This often boils down to a lack of basic internal control structure over who has the authority to set and change prices. For instance, I was recently with a client who was seeing some margin erosion. They learned that their counter people had been cutting prices without authorization. It had been going on for six months before they figured it out. Implementing a simple control procedure solved the problem. They created required permissions in their IT system to change prices from the allowed price. Some of the most profitable companies I work with are practically manic about controlling the prices being offered to their customers in order to prevent this type of erosion.

So, while many companies have created a strategy with the best intentions in mind, they have not taken the necessary steps to integrate it into their systems and procedures so that they can ensure proper execution. With that in mind, here are a few things to consider in your business:

  1. How do you compensate your salespeople – on gross sales or margins?
  2. Do you allow your salespeople latitude to change the price without other permissions?
  3. If you allow flexibility in pricing decisions, can you create exception reports in your IT systems that flag instances of pricing being different from the standard?

Being careful with pricing requires a high degree of discipline and painstaking attention to a large amount of details and transactions. The best performing companies get this done by making sure the right processes are in place to link their execution to their strategy.

Mario Vicari, Kreischer MillerMario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.   

 

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