Pricing Communication Breakdown
Pricing projects generally involve a high level of collaboration and coordination between numerous departments in an organization. At a minimum, representatives from sales, marketing, and finance should have a seat at the table. There are many advantages to having a cross-functional team, including having a diverse range of backgrounds, experiences, and training.
However, a common occurrence in a pricing project is for an organization to finally realize that its right hand does not always know what its left hand is doing. In the worst cases, the right hand is actively resisting the efforts of the left hand, whether intentionally or not. Trying to get all the departments on the same page can be a real chore. This chore will be significantly complicated by the use of imprecise or contradictory language.
A typical pricing project involves investigating a company’s current situation, identifying areas for improvement, co-creating optimal solutions, and then implementing these solutions. However, you will not be able to implement a solution, let alone discuss your organization’s current reality or a vision for the future, if your team is using muddled language or ambiguous terms.
For instance, I worked on a pricing project in which some individuals were using the term “net price” to indicate the invoice price after standard discounts are subtracted from the list price. Others were using “net price” to mean the pocket price after all rebates have been subtracted from revenue.
These are two very different numbers that tell you two very different things about the current state of the business. A pricing project in which the team is using the same term to refer to two very different numbers is a recipe for confusion.
A Way Forward
So how do you successfully get everybody’s language on the same page?
First, it is important to actually listen to how people are using words. In this step, detail really matters. You must pay attention not only to which words people are using, but also to the meaning that they are trying to convey by using these words. A healthy dose of humility and patience is advised.
For instance, I once encountered a manager who talked me through his business channel map and price structure. A typical path to the end user involved his company selling to a distributor, then that distributor selling to a retailer, and then that retailer selling to the end user. The manager mentioned that his company provided the distributor with an MSRP (manufacturer suggested retail price). Typically in the United States, an MSRP is the price that the manufacturer recommends that retailers sell to the end user. However, after some digging, I discovered that in this company an MSRP meant the manufacturer’s suggested price for distributors to sell to retail, not the suggested price for retailers to sell.
Just because 99% of the companies you’ve encountered use a term a certain way does not mean that all companies use that term the same way. So, don’t assume, because assuming will cost you wasted time and effort. When in doubt, ask. And, when possible, ask several people from several different functional areas.
Second, once you identify words that the team may have confusion about, strive to define a common, shared vocabulary. Naturally, you want to solicit input from the entire team. After all, they will be the ones who will ultimately be using the vocabulary. If the team does not use the vocabulary, then it will not really be a shared vocabulary. There may also be an opportunity to bring your organization’s language more in line with common practices in your industry.
But do not sacrifice clarity to standardize your organization’s language in accordance with an external standard. The most important thing is to create a structure for everyone within your organization to understand everything that everyone else in the organization is trying to communicate. It is next to impossible for you to coordinate a cross-functional team without a shared vocabulary. You’ll waste a lot of time just spinning your wheels.
Finally, do not be afraid of making adjustments. Language is an important tool that can be adapted to changing needs. Language can allow great feats of teamwork that would be unimaginable in its absence. And language naturally evolves over time. If you find that your new pricing vocabulary is working like gangbusters in internal meetings, but it only confuses your customers, then you may have a clear opportunity for improvement. Iterate through a few possible solutions until you find one that meets your organization’s internal and external communication needs.