Setting the right price is one of the best ways to positively impact a company’s bottom line. Yet, price-setting is not always top-of-mind nor owned by a single department within a company. This holds true across industries, whether it is consumer goods, healthcare, telecom, finance or technology. Sometimes Marketing takes responsibility for pricing, while other times Finance takes on the task. Often, we find that there exists no pricing strategy at all in companies, and thus, no clear ownership of pricing responsibility.
In this article, we explore why this is the case and provide three reasons why the marketing team should take responsibility for pricing. We based our findings on the ESOMAR pricing workshop we hosted with Procter & Gamble recently.
Let’s have a close look at why price setting is usually not owned by marketing. If you look at the four P’s of marketing (product, place, promotion and price), most interest goes to the first three and ignores ‘price’. While some suggest pricing is not as “sexy” a topic as Marketing’s other three P’s, we suggest the issue has more to do with pricing’s quantitative nature that pushes the practice over to Finance teams.
But big data, better and more intuitive analytics tools and Marketing’s ownership of other data (i.e. web traffic, market research, social media, etc.) have empowered Marketing and Market Research Managers in making data-driven decisions.
Three reasons why Marketing should own pricing:
- Nobody understands the digital buyer better than Marketing, and as of 2013, digital drove 37% of retails sales
Big data is not the total answer to pricing, because it still just gives an historical view, rather than anticipating the real-time value and relative value of products to buyers. However, the need for market-facing people to own pricing is becoming evident. Digital and real-time conditions are driving real-time pricing moves.
- Market Research has the pulse on the market, particularly in terms of how to talk to customers
Plus, forward-looking pricing requires ad hoc research that is best suited to marketers. Mobile and real-time customer interactions have become prevalent, so marketers must be the people to interact with customers ‘in the moment’ to present ideal pricing and offers.
- Marketing becomes a team of heroes, as pricing will turn marketing into a true profit center. The potential for high rewards is clear.
All the other P’s require risks and often fail to yield high returns. Optimized pricing can make a tremendous positive impact, especially when you’re in a highly competitive market.
Big data analysis has become the backbone of contemporary pricing over the last five years. That said, modeling prices based on historic data alone is not sufficient. Customer opinions still matter, and these can be obtained through any number of means, such as customer panels, surveys and even mobile phone apps. Combining traditional and contemporary pricing methods will yield insights that represent the best of both worlds.