Poor pricing practices are insidious — they damage a company’s economics but can go unnoticed for years. Consider the case of a major industrial goods manufacturer that was struggling with low profit margins, relative both to competitors and to its own historical performance. It traced much of the cause to a mismatch between its sales incentives and pricing strategy. The manufacturer was compensating sales representatives based solely on how much revenue they generated. Reps thus had little motivation to hit or exceed price targets on any given deal, and most were closing deals at the lowest permissible margin.
A Survey of 1,700 Companies Reveals Common B2B Pricing Mistakes
Poor pricing practices are insidious — they damage a company’s economics but can go unnoticed for years. Many business-to-business (B2B) companies have a major opportunity to improve their standing on price. To help companies understand the state of pricing capabilities and how they figure into performance, Bain & Company conducted a global survey of sales leaders, vice presidents of pricing, CEOs, CMOs, and other executives at more than 1,700 B2B companies, gathering their self-rating of 42 pricing capabilities and outcomes. Roughly 85% of respondents believe their pricing decisions could improve. On average, large capability gaps exist in price and discount structure, sales incentives, use of tools and tracking, and structure of cross-functional pricing teams and forums.