Page 118 - MYM 2016

Pricing and the CEO
CEOs o en ask me point-blank for my silver bullet in pricing. Is there one thing in pricing they can do to make their companies better o ?
the custodial aspect. He or she accomplishes this by fostering price discipline and by avoiding any moves which will undermine or jeopardize the alignment.
aiming high: Success factors of a premium price position
At this point, the CEO who asked me for my silver bullet usually wants an example. I o er one from the automotive industry and start at the high
end. Few CEOs have played the strategic, cul- tural, and custodial roles with stronger commitment and higher pro tability than Wendelin Wiedeking, who ran Porsche in Ger- many from 1993 through 2009. He involved him-
self in all major pricing decisions, but was neither
a high-level arbiter nor the leader of price negotia- tions. Instead, he immersed himself in the details of value and pricing, and he challenged his teams to do deeper critical thinking and more rigorous analyses.
e manner in which Porsche continues to create value – by optimizing performance, providing only value for which customers will pay, and defend- ing its price levels at the expense of volume – o ers broad lessons applicable to many companies and markets. Upon hearing these details from me, the CEO interrupts with a legitimate objection: “Mr. Simon... we aren’t Porsche.”
It is a fair statement. Does my answer also apply to mid-range carmakers? Does it apply equally to
the CEOs of so ware developers, technology manufacturers, bargain airlines, and deep-dis- count retailers? e answer is yes. e link
Porsche o ers one example of
a highly successful brand with
a premium price position. Its pricing strategy re ects the seven recommendations to the right.
Knowing that my background goes back decades in both academia and consulting, they probably expect the classic consultant’s evasive “It depends...”, or some scholarly rhetoric w“hich is long on syllables and short on relevance. ey get neither. Instead,
the answer starts with one word: pro t. “You need
to cement the link between price and pro t in the minds of your managers,” I
tell them. “Price is a com-
pany’s most e ective way
to drive enterprise value,
but it is an extremely sen-
sitive lever.”
To cement that link
between price and pro t,
a CEO must play three
roles: a strategic one, a cultural one, and a custodial one. e CEO de nes the primary strategic vector of a company: its direction and its goals. is includes the price position, which can range from ultra-low to luxury. O en viewed as malleable and somewhat arbitrary, the price position is in fact one of the most fundamental strategic decisions any CEO will make. It is also one of the hardest to change.
Flowing from that price position is a cultural tone, which underpins how the company creates, communicates, and captures value. e tone strongly in uences how the company selects talent, locations, suppliers, and other partners. e CEO has the primary responsibility of maintaining this align- ment between price position and culture. at is
Price is a company’s
most e ective way to drive enterprise value, but it is an extremely sensitive lever.
118 | MINd YOUr MarkETING OCTOBEr 2016