Interview with Manu Carricano, EADA’s Pricing Center director and Marketing professor
EADA’s Pricing Center, the first European research center in pricing, will be represented at the upcoming 3rd Annual Manufacturing Pricing Excellence Conference in Barcelona, on May 21st – 23rd, as one of the media supporting partners. The director of the center and Marketing professor, Manu Carricano, will be one of the 120 pricing experts from across Europe and beyond who will come to discuss, share, learn and network around several themes that form the center’s expertise in pricing. Recent results on pricing power measurement and innovations in pricing education will be shared with the professional community during the event. We interview Manu Carricano to talk about this European meeting, the main pricing trends and the relevant role of EADA’s Pricing Center in this context.
What are the main objectives for the next edition of Manufacturating Pricing Excellence in Barcelona?
In the last 10-15 years, pricing has developed as an entirely new function within the organization. The need of Pricing directors and managers to meet with peers has gained importance lately, and professional pricing events have become very popular. One of the good things of the Manufacturing Pricing Excellence in Barcelona is the very good representation of managers (vs. software vendors or consultants), and the importance given to networking.
In what sense the organization of this event demonstrates that the pricing is every time much important among the companies around the world?
Pricing is today at the very heart of business transformations in almost all the industries. It is obvious that the world is changing very fast. Digital, Big Data are becoming very important topics to maintain or increase competitive advantage. And pricing initiatives come to play in order to maximize profitability.
Give me, please, some reasons that convince people why pricing impacts on company profits.
Pricing is the lever with higher impact on operating profit. Many studies have demonstrated that 1% improvement in price impacts on profits in 8 to 11%, when cost reduction increases profit by 3 to 7%, and value improvements of the same magnitude only around 2%. After years of focusing on cost cutting or volume or market share improvements, companies are rediscovering pricing as a profit lever. A couple of years ago, Warren Buffett was quoted as saying in his testimony to the financial crisis commission this: “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business”. Pricing is definitely a “hot topic” in management and its impact goes beyond profits only. It is also about shareholder value today.
After years of focusing on cost cutting or volume or market share improvements, companies are rediscovering pricing as a profit lever
Which person or department is responsible for pricing strategies?
As all academics would answer to that… it depends. It is sometimes a matter of Finance, Marketing, Sales or Top Management. Pricing is by definition cross-functional. And that is the main root cause for inefficiency in the vast majority of organizations. In 2010 I co-authored a paper on The Pricing Function where we explained that it was mainly a matter of maturity. Firms that start pricing initiatives are more likely to put pricing below the umbrella of Finance, while more mature companies will have pricing reporting to Marketing. But there is no a golden rule. What is interesting, in terms of trends, is that pricing is rising in the corporate agenda. It is now more and more frequent to see companies with chief pricing officers, which denotes the importance and resources they give to the function.
In the case that the company creates a pricing department, what main actions should take?
There is certainly a priority here: gaining pricing visibility. At early stages, pricing is all about control & monitoring. Measuring pricing impacts in a holistic manner, on a variety of KPIs, but also reducing step by step the bottlenecks in the process and improving the efficiency of pricing execution. It is what we usually call price realization. It is a priority because this is a necessary condition and also a powerful source of quick wins.
Is there any golden pricing strategy that really works?
The key is really around price differentiation. In other words, being able to identify and leverage the elements that enable a company to extract a maximum value from the markets it operates. Pricing works best at a granular level, very detailed, very complex. This granularity makes opportunities more visible.
The key is really around price differentiation. In other words, being able to identify and leverage the elements that enable a company to extract a maximum value from the markets it operates
In a conference that you did some months ago at EADA you talked about 8 keys to optimize pricing. In your opinion, what are the most important and why?
This goes with the previous element. If you want to spot, in detail, the opportunities that can be extracted with a differentiated pricing approach, then the 1st “key” is data. Collecting the variety of data needed (transactions, value drivers, commercial conditions, competitors data, etc.) and creating a single point of truth on all this information traditionally hosted in different silos is the first step. When this is done, companies often realize that they lack a second condition, hence the second key: segmentation. The initial effort on data often puts in evidence the poor operational relevance of the segmentation used (if any).
Despite the current recession, most European companies have dropped prices. Is it a wise or a wrong solution?
That’s true. In many sectors we have observed price wars, or at least price cuts. This is related to a lack of maturity and control in pricing. Such companies tend to react, and often overreact to threats on volumes, and push the price button with the intention to solve their volume issues. But this effort is totally ineffective when competitors follow the same movement. And they almost always do. A lot of value has been destroyed in the last years with price cuts.
In many sectors we have observed price wars, or at least price cuts, which is related to a lack of maturity and control in pricing
And what about the case of Spanish companies? You pointed out recently that they are sick of poor pricing.
The problem above is particularly true in Spain. Companies are sick of poor pricing, and price decreases are many times the most relevant symptom. It takes years and years for a company to sell the value of its product, develop its brand, innovate, and price cuts destroy all these efforts for long. Which doesn’t mean that companies do not have to decrease prices. But if they do, they have to target specific products, specific conditions, offers packages, markets or competitive context etc.
Could you give any representative example?
There are many examples out there. Recently I was in a meeting with a medical devices company. Lately, they faced a constant price erosion. After some exploration of the possible factors behind it, we realized that there was a lack of innovation, i.e. same product portfolio, and a go-to-market strategy that was challenged by institutions and new entrants. The answer to that is not pricing, but strategy and business model innovation.
EADA’s Pricing Centre is focused on pricing power, above all, how to measure it and how to achieve it
Explain me please what is the EADA’s Pricing Centre and how it helps companies in their pricing strategy?
We work with our partners on all these fronts. At the centre of it stands applied research. Most of our recent initiatives are focused on pricing power: how to measure it (we have developed a great pricing power benchmark tool by the way), and also of course how to achieve it. We create fresh knowledge in the field and disseminate it through trainings, events and consulting. Come to the Manufacturing Pricing Excellence event, and you will learn more!