Complacency and Panic
“We have only two modes—complacency and panic.” James R. Schlesinger, 1977.
Dr. Schlesinger, former Secretary of Defense and Director of the CIA, was appointed by President Carter to serve as the first Secretary of Energy. He was referring to the country’s approach to energy: no strategy, only reaction. But the same could be said about any number of businesses today.
Companies with exciting new products and strong growth often see very little reason to think critically about their position. When times are good, why worry? Don’t fix what isn’t broken.
Sales Team becomes comfortable hitting volume targets. Especially when the industry itself is growing, it’s natural to sell more every quarter and not to sweat the small stuff. A few salespeople may not be stretching their potential, but volume numbers look good.
Marketing enjoys seeing strong market share numbers. Greater market share is a good thing. It’s the place of marketing to assist sales in selling more products.
Product is happy that their goods and services are finding paying customers. The products speak for themselves, evidently. While they may require an occasional tweak as an update, or some additional features to keep up with the marketplace, there’s no complaint to be had.
Finance is happy to see decent margins. Profit is profit. Macro-level data looks good, so there’s no reason to go digging.
IT is humming along, providing the backbone with which the rest of the company can deliver products and services. There are hiccups here and there, but overall things seem to be working well enough.
Whether it’s due to a sudden change in customer preference, a radical new market entrant, or more gradual erosion of volume, market share, or margins, the good times never last uninterrupted. Once the euphoria of easy growth is gone, troubles emerge.
Sales Team has trouble keeping up with volume targets, so they lower price. Surely what they lose in price they’ll make up in volume, and when that doesn’t occur, they lower price some more. Salespeople have no tools with which to negotiate but price, so that’s the only tool to use.
Marketing sees market share slip away but doesn’t know why. They don’t get great market intelligence, so they try a host of different marketing initiatives to stimulate growth. Sales need to figure out their problems on their own, and pricing is part of that.
Product doesn’t understand why what worked yesterday isn’t working today. They’ve added new features…why aren’t customers buying? Prices should remain high though because they’ve invested so much money into these new features.
Finance become aghast seeing margins slip away. Some products are being sold at negative margins, but they don’t have a way of communicating that information without giving away too much information about cost. They’re sure some products could be sold at higher prices, but they don’t know which ones.
IT realizes that different systems aren’t talking to each other well, and there are questions about data validity. Other departments are coming to them for more information, but they don’t have good tools with which to get it.
Aspects of both complacency and panic probably sound familiar to most people who have worked at any number of companies. It doesn’t lead to a healthy company, either in its internal operations or its external relationships with suppliers and customers.
You will notice that many of the issues during the panic relate to pricing. Addressing pricing strategy proactively can help construct systems to inform business decisions and notice changes in the marketplace. Thankfully, a little forethought and planning can go a long way toward identifying and addressing problems before they grow too large to manage.
Under a well-functioning system, with CEO-level involvement, the company sets priorities and processes through which departments communicate with each other. Every part of the company has useful information and an important role in forming pricing strategy.
Sales know that the ultimate goal of the company is profit dollars, not volume. Salespeople are rewarded handsomely for contributing to profitability, but are no longer incentivized to sell products at too low of prices. Commodity products eat up less time, and a value-based framework sells advanced products, not by price.
Marketing understands that it has a critical role in informing pricing structures and appropriate price levels. The collection of market information is systematized so that the company keeps abreast of changing conditions. Marketing helps sales understand and communicate value.
Product works closely with sales and marketing to understand what the marketplace wants. The customer is king, and sometimes the best product has fewer features, not more.
Finance keeps tabs on margins at the company and product level. Commodity and advanced products will naturally have different margins, but every offering has a range of acceptability. Pricing analysis, whether housed in finance or elsewhere, helps to inform decision-making and room for margin improvement.
IT develops systems that enable sales, marketing, product, and finance to share data and better understand company dynamics. For many types of companies, this requires a Configure Price Quote (CPQ) system to help sales give the right price for the right product at the right time.
Breaking the Cycle
When business is good, it can be hard to devote time and effort to ensuring that times stay good. But companies that address such issues of pricing strategy and organizational development can help stave off both damaging mindsets. Neither complacency nor panic mode is beneficial to organizations
What does P D S A stand for in the value pricing framework diagram?
Plan Do Study Adjust … .the Deming Constant Improvement Cycle. Because, pricing is always dynamic and there is always room for improvement. Buy Pricing Done Right for more.
Hi Joel, that’s Plan, Do, Study, Act/Adjust.