Latest / The Yield Doctor with James Deaker / Pricing has no power

Transcript

Pricing has no power · The Yield Doctor with James Deaker

• 0:01
  Most pricing teams aren't failing
• 0:03
  because they're bad at pricing. They're
• 0:06
  failing because they're set up to fail.
• 0:09
  If you've worked in pricing for any
• 0:11
  amount of time, you've probably had this
• 0:13
  experience. You do the analysis. You
• 0:16
  know what the right answer is. You can
• 0:18
  see the trade-offs clearly. and then
• 0:21
  your recommendation gets ignored or the
• 0:24
  deal goes through despite your protests
• 0:27
  or worse something bad happens and
• 0:30
  pricing gets the blame. So if you spend
• 0:34
  any time in pricing communities on
• 0:37
  things like LinkedIn you'll see the same
• 0:39
  complaints coming up again and again.
• 0:42
  complaints like we're doing great work
• 0:45
  but nobody listens or we're not having
• 0:48
  the impact that we should or we're
• 0:51
  constantly being overridden.
• 0:54
  And the thing is most people assume that
• 0:56
  the problem is something around their
• 0:59
  analysis not being good enough or the
• 1:01
  data isn't good enough or the team just
• 1:03
  needs better tools. But in my
• 1:06
  experience, that's never the real reason
• 1:09
  because I've seen very strong pricing
• 1:11
  teams, teams with great data and great
• 1:14
  people who have almost no impact. And
• 1:17
  I've seen similar teams that are smaller
• 1:20
  with fewer resources who are able to
• 1:23
  drive massive change across an
• 1:25
  organization.
• 1:27
  So what's the difference? If you had to
• 1:30
  guess, what determines whether a pricing
• 1:32
  team has influence or not?
• 1:35
  It's not the quality of the analysis,
• 1:38
  it's the structure of the organization
• 1:41
  and specifically the level of the person
• 1:44
  who leads the pricing function.
• 1:47
  So if the problem isn't the people and
• 1:49
  it's not the analysis, what's actually
• 1:51
  going on in these organizations?
• 1:54
  In my experience, you see the same
• 1:56
  patterns showing up again and again. And
• 2:00
  individually, each of these feels like
• 2:02
  frustration, but together they create a
• 2:05
  system where pricing teams struggle to
• 2:08
  have any real impact. So, let me walk
• 2:10
  through a couple of the most common
• 2:11
  ones. The the first is the problem of
• 2:14
  asymmetric reward. This is where if a
• 2:18
  deal successfully closes, sales declares
• 2:21
  victory. If the deal is lost, pricing
• 2:25
  becomes the easiest scapegoat.
• 2:28
  A second function or second problem is
• 2:32
  the fragmentation of the pricing
• 2:34
  function. Pricing isn't one team. It's
• 2:38
  spread across regions or products or
• 2:41
  processes
• 2:42
  so that not one group owns the full
• 2:45
  picture. The third problem can be that
• 2:49
  they are often buried within the
• 2:51
  organization. pricing might sit within
• 2:54
  finance or sales or marketing but
• 2:57
  without real executive sponsorship
• 3:00
  behind it. The fourth is misaligned
• 3:04
  incentives where good pricing is often
• 3:08
  about long-term value creation but many
• 3:11
  companies operate on quarterly targets
• 3:14
  and in particular the bonuses are either
• 3:17
  quarterly or annual.
• 3:20
  The fifth challenge is that often
• 3:22
  pricing teams are creating data without
• 3:25
  influence. The analysis might be right,
• 3:28
  but it's often the case that it's just
• 3:30
  used to justify decisions that have
• 3:33
  already been made. And finally, there
• 3:36
  can be an uneven reactive workload
• 3:40
  within a pricing function. pricing tends
• 3:43
  to be very spiky around deals, launches,
• 3:47
  some kind of crisis, and that makes it
• 3:50
  hard to establish a constant operating
• 3:52
  rhythm with many of the other teams. So,
• 3:56
  if you step back and look at all of
• 3:58
  these together, none of these have to do
• 4:00
  with the capability of the team. They're
• 4:03
  all structural. They're all about where
• 4:05
  does pricing sit within an organization,
• 4:09
  how is it organized, and who has the
• 4:11
  authority to make those decisions. So,
• 4:15
  if all of these problems are structural,
• 4:17
  it raises an obvious question. What
• 4:21
  actually determines whether a pricing
• 4:23
  team can influence decisions?
• 4:26
  Because in every company, pricing is
• 4:29
  trying to influence people who have real
• 4:31
  power. whether it's the sales leaders,
• 4:34
  the product leaders or general managers.
• 4:37
  So what has to be true for pricing to
• 4:40
  actually win those arguments? In my
• 4:43
  experience, it comes down to one thing.
• 4:45
  The pricing leader has to be at the same
• 4:48
  level or higher than the people that
• 4:50
  they're trying to influence. And in most
• 4:53
  companies, they are not. They're
• 4:55
  typically a director or a senior
• 4:58
  manager, which means that they're trying
• 5:00
  to push back on VPs or even seale
• 5:03
  executives who own the revenue number.
• 5:06
  And at that point, it really doesn't
• 5:08
  matter how good the analysis is because
• 5:10
  this isn't a data problem. It's a power
• 5:13
  and authority problem.
• 5:16
  When pricing does work well, you almost
• 5:19
  always see a different model. You see a
• 5:22
  senior leader, typically at the VP level
• 5:25
  or above, who has direct access to the
• 5:28
  executive team. This is someone who can
• 5:31
  say no to a bad deal and have that
• 5:33
  decision stuck to. I saw this very
• 5:36
  clearly at Yahoo. There were periods
• 5:38
  when I had frequent daily access to the
• 5:41
  CEO and I was effectively the only one
• 5:44
  outside of sales leadership who could
• 5:46
  push back in a meaningful way. And this
• 5:50
  wasn't about my personality, no matter
• 5:52
  how winning my personality is. It was
• 5:54
  about the position within the company.
• 5:57
  So when pricing teams say, "We're doing
• 5:59
  great work, but nobody listens," they're
• 6:02
  usually right. But the answer is not
• 6:05
  capability.
• 6:06
  It's that the function is underleveled
• 6:09
  relative to the decisions that it's
• 6:11
  trying to influence.
• 6:13
  So if the issue is that pricing is
• 6:15
  underleveled, then the obvious question
• 6:17
  becomes how do you justify a more senior
• 6:21
  leader? Because in many companies,
• 6:24
  pricing just isn't big enough to own a
• 6:28
  or to justify a VP level role. And this
• 6:32
  is where I see a lot of organizations
• 6:34
  get stuck. They recognize the problem,
• 6:37
  but they try to solve it within their
• 6:39
  existing structure instead of stepping
• 6:42
  back and redesigning the function.
• 6:45
  So, what I've seen work most effectively
• 6:49
  is to expand the scope of the role. It's
• 6:52
  no longer just the head of pricing, but
• 6:55
  particularly in digital media, you might
• 6:57
  see it be a broader revenue or yield
• 7:00
  management function. And in digital
• 7:03
  media, the natural way to bring this
• 7:05
  together is to bring things like price
• 7:08
  setting, the deal desk, inventory
• 7:11
  management, and channel management all
• 7:14
  together and treat them as an integrated
• 7:16
  system because in reality they are. And
• 7:20
  they all are different levers trying to
• 7:22
  work to drive up revenue and yield. And
• 7:26
  if you start thinking about it in this
• 7:28
  way, you realize there are other
• 7:30
  functions that often belong in the same
• 7:32
  orbit. There are things like ad quality,
• 7:35
  ad policy, and traffic safety. And at
• 7:39
  first glance, these don't feel like
• 7:41
  pricing problems, but they're all
• 7:43
  dealing with external actors,
• 7:46
  advertisers, agencies, demand partners,
• 7:50
  and they all involve trade-offs between
• 7:52
  revenue, risk, and long-term value. And
• 7:56
  so when you consolidate them under a
• 7:58
  single leader, you don't just increase
• 8:00
  the scope of that leader, you also
• 8:03
  increase the context that is available
• 8:05
  to everybody within the function. You
• 8:08
  increase consistency and you increase
• 8:11
  decision authority and that's the key.
• 8:15
  So now instead of being a narrow pricing
• 8:18
  function trying to influence the
• 8:20
  business from the sidelines, you have a
• 8:22
  senior leader who is in a meaningful
• 8:24
  position and helping the business to
• 8:26
  make money and this is a role that
• 8:29
  actually justifies the level.
• 8:32
  So one quick caution uh it's very easy
• 8:35
  to hear this and think great let's just
• 8:37
  add more senior roles but that is not
• 8:39
  the answer because there is a downside
• 8:43
  to building a senior VPheavy
• 8:45
  organization
• 8:47
  it gets expensive it creates visibility
• 8:50
  of being a topheavy organization and in
• 8:53
  many companies it becomes a target for
• 8:56
  when leadership starts to look to
• 8:58
  simplify or reduce costs and and I saw
• 9:01
  this firsthand. At one point when I was
• 9:04
  leading pricing across Verizon Media and
• 9:07
  Yahoo, we had multiple VP level roles
• 9:10
  across the broader function. And
• 9:12
  structurally, it made sense. It
• 9:15
  reflected how the business had come
• 9:17
  together through acquisitions.
• 9:19
  But over time, that structure did not
• 9:22
  hold. Those roles were gradually
• 9:25
  stripped out or reorganized, not
• 9:27
  necessarily because the work wasn't
• 9:29
  valuable, but because the optics and the
• 9:32
  cost had become too hard to defend. So
• 9:35
  the goal here is not to build a large
• 9:38
  topheavy team. The goal is to be more
• 9:41
  specific to ensure that you have at
• 9:43
  least one senior leader with the scope
• 9:47
  and the authority to represent pricing
• 9:50
  and revenue decisions at the executive
• 9:53
  level. So let's bring this together. Uh
• 9:56
  a lot of pricing teams feel like they're
• 9:58
  not having the impact that they should
• 10:00
  and in many cases they are right. But
• 10:03
  it's not usually because the analysis is
• 10:05
  wrong. It's not because the people
• 10:08
  aren't capable. It's because of where
• 10:10
  the function sits within the
• 10:12
  organization
• 10:14
  and the level of the person leading it.
• 10:17
  If pricing is underleveled, it will
• 10:20
  always struggle to influence decisions
• 10:22
  no matter how good the work is. And if
• 10:25
  you want to fix that, it's not just
• 10:27
  about improving the analysis. It's about
• 10:30
  redesigning the function. It's about
• 10:32
  expanding the scope and about making
• 10:35
  sure it has real authority at the
• 10:37
  executive level. And if you're in a
• 10:40
  pricing role, this is the question I'd
• 10:42
  leave you with. Are you trying to solve
• 10:44
  a capability problem or are you actually
• 10:48
  dealing with a structural one? And if
• 10:50
  you are a senior leader, the question is
• 10:53
  even simpler. Do you have someone in
• 10:56
  your organization who can truly
• 10:58
  represent pricing and revenue and the
• 11:01
  trade-offs at the level that the
• 11:03
  decisions are being made at? This is the
• 11:06
  type of challenge I work with with my
• 11:08
  clients, not just helping teams to
• 11:09
  improve their pricing, but also to put
• 11:12
  them in position where they can drive
• 11:14
  real impact. I am James Deika. I am the
• 11:17
  yield doctor. Thanks for watching.
• 11:22
  Hey,