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Should a dynamic pricing implementation lead to changes in how you organize pricing within your company?

How to set up your organization's pricing team?

Within our customer base we often see that a dynamic pricing initiative supported by software implementation is a moment to rethink pricing responsibility. Historically pricing often fell within the domain of the buying department. But with an ever growing emphasis on margin vs revenue and price change frequency it is smart to think about who should be using a pricing tool and ultimately be responsible for pricing. Should it be the buying department, a dedicated pricing team or another option altogether?

This article dives into the three different flavors of organizational setup we see in the Omnia customer base, each with their own advantages and disadvantages.

 

Data driven category managers

In the first of these three organizational structures the responsibility lies with the buying department/category managers. This implies that the party responsible for choices on assortment, merchandising, buying and pricing remains responsible for pricing. 

The advantage here is that there is a strong link between pricing and key topics such as assortment or negotiating better purchase prices from suppliers, which also falls under the responsibility of buying. Keeping this responsibility in one decision making unit increases the likelihood of driving synergies. Next to that this option does not require a high investment in your team as these buyers/category managers are most likely already responsible for price changes. This would allow them to spend their time on a strategic level instead of on manual price changes.

A potential disadvantage is that buyers within the more traditional buyer profile are not always data-driven and might need training to be comfortable to think more in explicit pricing strategies as well as automating those in tools. Next to that you need a clear owner of the tool to manage the daily operations and settings of the pricing software. That being said, the Omnia portal is designed with ease of use as one of its key value propositions.

 

Dedicated pricing team

Pulling the pricing responsibility away from buying/category management and placing it into a dedicated pricing team is the second possibility. 

The major advantage of this strategy is that pricing is done by specialists, which can increase speed of learning and strategic improvements. Improving the sophistication of your pricing strategy and the potential value you could get from a dynamic pricing tool.

A potential disadvantage is that this setup can lead to organizational challenges, or even tensions, where category managers still have margin targets, but they can not decide directly on a key driver of that margin; pricing. This means that as the positive externalities fall away it will also be more difficult to realize benefits such as category managers using data to do data-driven negotiations with suppliers, assortment optimizations, etc.

 

Combined superpowers

The third approach is a hybrid one where the accountability remains at buying/category management, but there is a central Pricing Team (or single Pricing Manager) that is responsible for the execution of the strategy and the daily operations of the software. This pricing team or manager is advising the buyers/category managers on the settings and strategy. The role of the category manager is to define what competitors to track and how to weigh them, set contribution margin targets, determine rounding logic etc.

This setup has a key advantage over the other two setups where such a centralized role (or even team) can take the lead on pricing, train the team to use the tool, and facilitate knowledge sharing among category managers. This creates more uniformity and a clearer overarching pricing strategy as well as that the positive externalities, such as data driven negotiations in the buying department, remain in place. In a sense, it combines the advantages of both previously discussed setups. 

As sadly no setup is without disadvantages, this setup also has two. First of all the responsibility distribution can become vague and this distribution needs to be clearly outlined from the get go. Secondly, it requires a higher investment in your company's team than having just category managers but it could be well worth the investment if the budget allows it.

 

Which flavor is right for you?

All three flavors can work and, as with everything, it also is a question of proper execution. Important inputs for this decision are what the typical profiles of your current category managers are, thus are they data driven or not and have they worked with pricing strategies before? Next to that it’s important to know the time frame in which you want to implement a pricing tool as well as the willingness to invest in a pricing team. Irrespective of your setup, the automation of a dynamic pricing tool will ultimately lead to more time spent on optimizing the pricing strategy, instead of manual price changes. Therefore it is not about saving FTEs but about ensuring those FTEs work on a more tactical and strategic level, making them as effective as possible.