Why Would a Company Want a "Chief Pricing Officer"?
I apologize for the slow posting here. I left one company and started work at another, and also had quite a bit going on in my family life, and one thing that suffered was finding the time to do writing and podcasting.
My new job is as the head of pricing at a company that makes industrial resins (unsaturated polyester resins and vinyl ester resins as well as gel coats, if you’re interested in the details which I am currently busy learning.)
Something which is fairly unusual about this role, and which was a major motivation for me in taking the opportunity, is that it reports directly to the CEO and is on the leadership team. This means that although my official title is Senior Director of Pricing it is effectively that unicorn of pricing roles which is talked about much more often than seen: a chief pricing officer.
Now, let me start out by saying that while I think that more companies could benefit from having pricing represented on the leadership team — and despite being on the board of advisors for chiefpricingofficer.com, which has the goal of encouraging investors, boards, and senior management to take strategic pricing leadership seriously — I’m not necessarily a huge fan of the title Chief Pricing Officer.
For one thing, CPO more commonly stands for Chief People Officer or Chief Product Officer, so pushing for a less common meaning for CPO creates confusion.
Additionally, having lots of c-level roles cheapens the terminology. At an aesthetic level, I think a company should not have more than half a dozen c-roles. Not every person on the leadership team needs to have a “Chief Something Officer” title.
But why does pricing belong in this group at all?
This points us to the question of what the leadership team exists for and why the leader of any particular function within the company is included.
Companies are made up of humans, and the human person can only communicate efficiently in groups of a limited size. Across the company, there is detailed knowledge of all of the company’s functions and data, knowledge which could inform all decisions in detail. However, in order for decisions to be made that information and experience needs to be gathered into a group which is small enough for efficient interchange of ideas and decision making.
This is what the leadership team should accomplish. The leadership team should encompass the leaders of the key functions or regions which can allow the team, working as a whole, to make informed decisions for the entire company, while considering all of the trade-offs which may be involved.
The functions which need to be included in this group may vary across industries and companies and even across time for the same company.
For instance, a company which is going through a major transition in its IT infrastructure and processes may need a Chief Information Officer on the leadership team, and let at another point when such major changes are not underway, there may not be a need for a CIO to be on the leadership team at certain types of companies.
Companies where the ongoing development and direction of a core set of products are essential to the strategy of the company may have a Chief Product Officer, while in other companies the management of product strategy may be represented by the head of Marketing or even Operations.
Some companies fill all their leadership team slots with heads of functions (sales, marketing, operations, HR, etc) while others have the heads of different regions, and many companies take a blended approach, with some functions represented on the leadership team by global heads and others rolling up under the heads of regions.
However these roles are allocated, the goal is to provide a structure in which all of the important factors in setting strategy are well represented on the leadership team so that when they work to set company strategy and plans, no important factors are neglected.
So why and when should pricing be represented on this team?
Pricing may at first seem an odd fit for the leadership team, because the size of the team represented is not very large. Most of the other functions which are represented on a leadership team have a fair number of people in them.
However, it’s not the number of people who are in a function which is the key factor. Instead, it’s what combination of leaders can be put together to set strategy for the company as a whole while taking all important factors into account.
Pricing is indeed an important factor, in that it is the way in which the value delivered to customers is turned into revenue and profits. There are other functions which which can plausibly speak to pricing, but often they come with their own limited frames of reference.
To the Finance function, pricing may primarily be seen as a profit lever: make sure no one is priced too low and that we take our regular price increases to maintain margin rates. To Sales, pricing is the way of staying in price position with the competition and closing sales. To Marketing, how the pricing will sound when communicated to the customer, both on its own and in reglation to competitors, may seem like the most important factor.
In fact, all of these views of pricing are true, and if everyone on the leadership team is bringing these perspectives to their discussions and thinking about how to satisfy those goals with pricing, they will end up have pretty healthy pricing as a company even if the actual pricing teams do not go above the manager level are and embedded within some other function.
However, this requires the heads of all the major functions to think constantly about how pricing can best be set to achieve the company’s goals. Often, the leaders of those functions are most focused on is their own core functions. This can leave pricing as an afterthought.
This is where having a head of pricing on the leadership team can be very useful for a company, especially in times of transition when they are trying to improve their profitability or change their pricing practices.
The goal of having a pricing leader on the leadership team is not to speak up for pricing in some isolated or niche way, but to look at all aspects of the company from a pricing point of view.
Are there ways that the product offering could be changed or diversified in order to be able to charge higher prices while delivering greater value to some particular types of customers? Or is there an opportunity for a stipped-down product at a lower price to capture a new market segment? Could the structure of product support be changed in a way that would allow the company to price more as a service offering than as a product? Is the marketing conveying the value in a way which allows the company to price for it? Are lead generation efforts going after the kind of customers which are willing to pay the most for the company’s products?
Whether a company has pricing focused functional leaders, or a company-focused pricing leader (ideally, a company should have both) these are the kinds of questions that the leadership team should be discussing in order to command the highest margins for the value they are delivering.
For companies large enough to sustain a pricing function with an experienced pricing leader (typically, companies with $400M a year or more in revenue) this could be a good reason to have a pricing leader on the leadership team. For companies that are smaller, the company’s existing leadersip team needs to bring this kind of broader and more strategic focus to pricing, thinking of it not just as a tool to either juice profits or close sales, but as the key way in which they can realize the value they are providing.