Pricing and Profitability Management: A Practical Guide for Business Leaders

Aligning Sales to Support Pricing and Profitability Goals

Of all the departments and functional areas in an organization, Sales has the most influence over pricing (and pricing the most influence over Sales) because everything depends on that moment when a customer agrees to buy a product under certain terms.

To achieve profitability goals, organizations must reward the right behavior and decision making among their sales teams. This means managing every element of the Sales function, as follows.

Incentives

Nothing can undermine a pricing strategy faster than a sales team whose incentives are not perfectly aligned with it. For example, a company might use value pricing, which means the same product (with the same cost to produce and ship) is priced differently according to the perceived value in different markets. For example, the company might sell a tank of oxygen for $10 to an automotive repair shop and for $40 to a hospital that uses it for life support. Obviously, the company would want to encourage its salespeople to sell more products into health care facilities. Yet if the salespeople are compensated based on the total volume of products they sell, then they may focus more on the automotive repair shops even though they are less profitable for the company.

Tools

For salespeople to implement a pricing strategy, they must have the right tools. For instance, they can use a profit waterfall (see Chapter 5, “Advanced Analytics and Price Setting”) when calculating the potential ...