How to form a Pricing Team

How to form a Pricing Team

Some questions I regularly get asked by senior executives are, "Where should a pricing team sit?, How big should my pricing team be?,  What skillsets are needed on a pricing team?, Etc.".  With this article, I'll be explaining the ins and outs of forming a highly functional pricing team.

Where should a pricing team sit?

The first question that will usually need to get answered is about where a pricing team should sit to be most effective.  Over my pricing career, I've worked in and seen pricing teams under Sales, Marketing, Commercial, Product, Finance, and the CEO directly.  If I had to rank these six areas in order of worst to best, I would rank them as the following.

6. Sales - The problem of having a Pricing team under Sales is directly related to usually having different objectives.  To be more blunt, Sales usually pushes for revenue first and Pricing usually pushes for margin first.  While this may seem like a match made in heaven, what tend to happen is that when Sales is behind on revenue, they will want to drop prices to fill the gap.  If pricing is under their control, this is likely exactly what they'll do.  This is not a good situation.

5. Finance - You could argue that Finance wants revenue as much as Sales, but they also care more strongly about Margin.  The main issue with a Pricing team sitting under Finance is that Finance is typically less connected to customer perceived value.  They tend to see customers more as numbers on a spreadsheet.  A pricing team needs to be connected to its customers, particularly the value they are delivering to them, so it can price effectively.

3. (Tie) Marketing - There is definitely some strong synergy between Pricing and Marketing.  Of course, technically speaking, Pricing is one of the four P's of Marketing.  Marketing tends to be close to customers, so appreciates customer value, but doesn't get too close to customers where they become biased, which Sales can succumb to.  However, many times Marketing isn't targeted to drive revenue or margin, and is more concerned with customer and volume numbers.  This mismatch in objectives can cause issues.

3. (Tie) Product - One of the main teams that a Pricing team will work with is the Product team.  Similar to pricing, the product team will (should!) want to understand the value of the product they are creating.  They also have independence from Sales, Marketing, and Finance.  Where the product isn't ideal is that the tend to not be as commercially focused as some other divisions are, but this isn't mandatory and can actually be a blessing in disguise.  Clearly though, the benefits of being on the same team as the team that is creating value for the company that you are pricing off of, has a lot of merit.

2. Commercial - The Commercial team is a good independent middle ground between Sales, Marketing, and Finance.  They tend to care about all of the relevant metrics that a Pricing team would.  The skillsets of a commercial analyst or manager are similar to what is needed for Pricing (more on that later).  There just seems to be the most synergy in this structure.  Now, this is assuming independence of the Commercial team.  If the Commercial team reports into the Finance team, then some of the issues under Finance above start to appear.

1. CEO - This is the best outcome for the Pricing team.  It gives it the independence, support, and attention it deserves as the team that is the major contributor to the commercial financials of the company.  There are no conflicts of interest.  It just works.  Of course, this assumes the pricing team is capable of operating on its own, but this shouldn't be an issue for a well structured pricing team.

To sum up on where the pricing team should go, a pricing team needs a couple important mechanisms to function.  It needs independence to be true to pricing strategy.   It also needs backing and support to ensure the business executes on the recommendations given.  Regardless of where the pricing team sits, it will be working across the majority of the business, including Sales, Product, Finance, Commercial, and Marketing in any case.

How should a pricing team be structured?

I usually break a pricing team into three distinct elements, but this will vary some from company to company.  The three elements center around strategy, analysis, and execution.  A team will need someone to set the principles, objectives, and strategy around pricing, which is usually the leader of the team.  Then some analysts will be needed, because pricing is quite analytics heavy most of the time, especially for companies with many products or customer segments.  Lastly, after a pricing decision is made (usually a collaborative process), someone will need to work with Training, Sales, Billing, etc. to get the pricing decision implemented.  Sometimes this is done by another team in a project management guise.

How big should a pricing team be?

When it comes to the number of people needed for a pricing team, this really varies from company to company.  It can be as few as one or be a whole division.  The main drivers of team size are number of products, number of customers, and complexity of the pricing process.  Many times it can also rely on analysts pools instead of dedicated analysts and other teams resources for pricing tasks.  However, this is not recommended.  Pricing work should not be waiting in a queue for an analyst pool to get to.  I'd always recommend a dedicated team to support the end to end pricing process.

What skillsets are needed for a pricing team?

When it comes to the skillsets needed for a pricing team, there is a lot of similarity with a Commercial team.  A Commercial Analyst and a Pricing Analyst will share the same skillsets for the most part.  The operational pricing person is similar to a Commercial/Finance Business Partner, with a bit more project management skill.  The leader of the Pricing Team will likely have a similar skillset to the leader of a Commercial Team, but with quite different knowledge and experience.  You want someone with extensive pricing experience to be leading your pricing team, as this is the most critical role to get right.  A good pricing leader can train their team in pricing, but it would be hard for them to train themselves.

But what if I'm on a team that isn't setup like this?

Much more important that where a team sits, or how exactly a team is structured, is the people on the team and how effective they are at their roles.  You can have an effective team under Sales for example.  It may just be a bit bumpier ride or maybe the company has managed to give the Pricing Team true independence even if it is under another division.  In any case, I hope this has helped those of you seeking answers to these questions.