Driving Commercial Excellence Is the Next Crucial Step Towards Pricing Power

Making continuous improvements across the firm’s commercial processes is fundamental to build back stronger from the pandemic and potentially other grueling setbacks. This move arms industry players with the tools needed to optimize the power of pricing, maintain value, and sustainably grow profitability.

Experts are presently voicing strong opinions about leading through change and crisis by venturing into commercial excellence undertakings—confidently claiming that industry players with enhanced commercial capabilities are expected to outperform their peers.

Many companies working on their commercial agenda in times of COVID-19 began pursuing long-term gains by making uninformed decisions and hastily slashing prices. More often than not, however, such attempts may prove to have the opposite effect. Unthoughtful changes in pricing can compromise profitability and stop most industry players from reaching their commercial targets.

How can firms then rebound to more sustainable growth?

Organizations firstly need to factor in one of the primary forces for growth in today’s highly uncertain climate: a promptly and correctly implemented commercial policy.

An Essential Part of Moving Towards Commercial Excellence Is Setting Up a Policy with Great Impact

A strong commercial policy is set to competently guide firms through a robust thicket of disruptive events. It essentially provides a roadmap for industry players looking to strengthen the groundwork for enhanced pricing power and aids firms in driving sustainable impact.

At the 9th Annual Manufacturing Pricing Excellence conference, a large-scale virtual event recently hosted by Copperberg, industry-leading experts spoke about the ropes of putting together an excellent commercial policy.

Andréas Stepien, the Group Pricing Manager at Duni Group, walked attendees through a set of “Perspectives on How to Implement a Commercial Policy with Impact” and issued a warning about the biggest pitfalls that may potentially prevent firms from driving commercial success. Some of these drawbacks are associated with:

• The lack of mandate
• The inability to set realistic expectations about policy implementation
• The commercial policy being nothing more than a mere paper

Industry players looking for answers on how to manage policy implementation obstacles are urged to start with securing CXO backing, using fact-based information to involve local decision-makers in improvement processes, and getting clear on their commercial expectations from the very beginning. Planning for potential setbacks allows firms to lay the rudiments of a well-built blueprint, but the success of a commercial policy also depends heavily on outlining the most powerful areas of focus for long-term impact:

“You might ask yourself: Where should I start? What is the most important element [of a commercial policy]? This exercise will help you: divide the strategic and tactical natures [of your policy elements]—and when you have defined that, you should also be able to identify where you will get a low or high impact.” — Andréas Stepien, Group Pricing Manager at Duni Group

A new Deloitte report also proposes a few pointers aimed at helping firms reach commercial excellence. In a telling observation, experts encourage industry players to cleverly take steps towards a commercial reboot by:

• Using strong data and analytics capabilities to make better commercial decisions.
• Establishing a cross-functional Commercial Command Center to accelerate the decision-making process and execution.
• Applying the proper pricing tactics that enable firms to actively take into account commercial alternatives, segment prices, or provide greater payment terms to customers.

It is important to acknowledge that the route to commercial excellence is a process of continuous self-assessment and adjustment. Firms may put their advancements in danger of reversal if they don’t routinely revise and update the commercial policy as necessary.

A Commercially Excellent Firm That Drives Consistent Value Inches Significantly Closer to Pricing Power

Reaching a higher level of pricing power, which allows firms to increase prices without affecting demand, is contingent upon a company’s ability to create superior value through its commercial capabilities. Investing in next-level capabilities for better commercial execution is a requisite for sustaining pricing power, too—insofar as the aim remains to constantly enrich the value offered to customers.

A healthy pricing strategy is another important value driver for the majority of businesses. In a session held as part of Copperberg’s Manufacturing Pricing Excellence event, Michael Schlitzkus—Global Pricing and Commercial Excellence Manager at Siemens Healthineers—talked about how to “Incorporate a Value-Based Pricing Approach to Support Profitable Growth.”

As Michael Schlitzkus points out, pricing excellence acted as a key enabler in the company’s tale of sustainably growing profitability:

“Pricing excellence enables us to effectively convey the right value of our offerings to customers and, in return, get the best value for it.” — Michael Schlitzkus, Global Pricing and Commercial Excellence Manager at Siemens Healthineers

With pricing as the primary lever to drive profitable growth, the firm put the bulk of its efforts into implementing the Price Realization Factor (PRF)—a price-quality KPI that aided Siemens Healthineers on its quest to efficiently measure, evaluate, steer, and sustainably reach its profitability targets. But it did not stop there. Now, PRF Target-Driven Pricing represents a new standard pricing methodology that is additionally stemming from the company’s efforts to grow profitability—all in a bid to help industry players:

• Reduce escalations to management levels
• Integrate and apply the firm’s local pricing policy
• Adapt to the willingness to pay of customers
• Measure pricing quality through target fulfillment
• Stay in line with the company’s targets

Firms will fall short of growing sustainable profitability without smartly using the right pricing mechanisms. Often, sustainable gains are a result of closely intertwined commercial and pricing activities. A fully integrated value-based approach across functions gives new impetus to industry-leading commercial excellence initiatives while simultaneously providing leaders with more opportunities to drive profitable growth and retain pricing power.

Next, Companies May Need to Firmly Position for Customer-Centric Commercial Excellence

As the global economy reopens, the customer will continue to sit at the center of the commercial function.

Firms ought to understand and be highly responsive to shifting client demands through innovative service initiatives and pricing adjustments to maintain their ascendancy to excellence. A greater understanding of client preferences will also help industry players with assessing and expanding the commercial potential of their customers.