Pricing Is Never A Sales Problem

Recently, I had an interesting conversation with an executive. He reported on pricing problems within the sales organization. It didn’t make sense to me, so we dug into the issues a little. I can’t recap the conversation, but here are some of the issues we discussed:

1. Pricing is never established by sales It’s usually established by some combination of product management, finance, and sometimes strategy. It’s based on huge numbers of factors and organizations create pricing from any number of factors. Sometimes, is a simple as a cost plus basis (I hope not), sometimes it’s based on value realization, sometimes it’s based on competition. There are any number of factors that are constantly changing that impact pricing. But sales never establishes pricing! Sales has to achieve their goals at the pricing they are given.
2. Some of you may be smirking, saying, “Dave, you don’t get it, what about discounting–that’s sales taking pricing actions.” There are several issues at play, but they are really not pricing issues:
   1. Sales may be allowed to to discount by certain amounts, without any needed approvals. That’s part of a pricing strategy. Sales doesn’t establish this strategy, sales execute it.
   2. There may be deeper discounts required for certain sales situations. The decision on these is never a sales decision. While sales may be arguing for a deeper discount it has to be a pricing decision. There are lots of factors and concerns about price erosion, profitability, etc, but those decisions are made by pricing. Recently, I worked with an organization that had a consistent average discount of 50%. My instincts said, “these sales people had a problem defending value,” as we got into it, we discovered some other issues. They, in fact, had a pricing problem. We repriced the product lines and saw a remarkable change, discounting was much less an issue, in fact it was rare. But we had restructured market expectations and positioning, enabling the organization to dramatically improve win rate, reduce sales cycles (huge amount of time spent in negotiating discounts), with zero adverse impact to profitability.
3. More normally, the “pricing problem in sales” is not a pricing problem but weakness in articulating and defending value. In 90% of the organizations we work with, to varying degrees, this is a core issue. And we will never fix this with pricing actions. Rather we fix this by providing sales people tools, training, support, and coaching to better articulate and defend value.

Pricing can be a problem. Sales, sometimes, helps us identify that we may have a problem (either purposefully or accidentally as in 2.2 above. But it is never sales’ responsibility to solve pricing problems. It is sales responsibility to defend pricing through clearly communicating and defending value.