Who Owns the Pricing?

A frequent discussion in product management circles is: Who owns product prices at the time of sale?  When Sales is negotiating a deal, and it’s time to look at making pricing adjustments, who makes, who owns, the decision?

Early on, before the first product ‘unit’ is ever sold, a price model is developed.  This is a core function of product management and a component of the business model.  Making 10 widgets costs $X, we’ll sell them for $Y, and $Z ($Y – $X) is our profit.

Things start to get muddled though. In the B2B (business-to-business) world, it is common for a company to sell another company a ‘solution.’  Solutions often are built using multiple components (e.g. distinct product offerings) to form the whole.

So, who owns the pricing? Sales, Product Management, or…

This is one of those times where there needs to be a bit of clarification around the particular definition of ‘product manager,’ within the respective organization. And, are we discussing B2C or B2B? My own comments are B2B oriented.

If the PM has No P&L Responsibility

Here, the PM is essentially in a ‘staff’ role. The person accountable for profitability (VP Sales? VP Product? ??) will accept or overrule the PM’s recommended pricing as necessary. This is frequently true in multi-component solution sales where an engagement manager is looking at a big picture and not just single-product focus.

If the PM Has P&L Responsibility
Ultimately, the person accountable for revenue and profitability controls pricing.

In this case, the product manager is directly responsible for gross sales and profitability. Here, the PM simply must have input into the price negotiation. While it often happens, note that I am not encouraging the PM to directly become part of the sales process.

The PM develops the price model, as a component of their offering’s business plan. But the person  accountable for revenue and profitability ultimately controls pricing.

1 Response to “Who Owns the Pricing?”

  • Andrew Stein May 23, 2012 at 2:31 pm

    Excellent post to tee up a number of questions, JT. To your point that whoever owns P&L should own pricing…, one might ask if Sales, as a function, or organization, ever owns P&L for a product or line of business? I can’t think of a case. Hence, Sales should nearly always follow pricing guidelines from the owner of the P&L, as you point out.

    As for Product Management – clearly the best companies give P&L to this role, or the “super product-line manager” at the divisional head in some larger organizations. As I think of PM, however, I feel that in addition to responsibility for pricing, PMs, or the owner of the P&L should also provide both a framework for the discount structure, and the rules and process for engaging that framework and ensuring approval from the P&L owner. This doesn’t have to be complicated, and it even can be automated in tools such as a CRM. But, with out a framework to provide guidelines for discounting, and an approval process, problems are imminent.

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