Whether yours is a well-established pricing function or your company is just getting started down the path toward more rigorous pricing, a question often arises about the best organizational and/or operational approach. This question usually boils down to something to the effect of:
Should pricing be centralized or distributed?
In other words, should there be a centralized, command-and-control pricing department through which any and all pricing decisions will ultimately be made? Or should pricing determinations be made closer to the point-of-need, with authority and discretion residing within each business unit, region, or sales territory?
Of course, there are numerous pros and cons to each approach…
For example, a centralized pricing authority is removed from the heat of battle and more likely to make rational decisions in the best interests of the company overall. On the other hand, a centralized pricing authority is removed from the point-of-need and less likely to make timely decisions aligned to the realities on the ground.
A distributed pricing authority…a regional manager, for example…is more in-tune with localized changes in market dynamics and more likely to respond in a timely manner. At the same time, a distributed authority is blind to the dynamics in other regions and less likely to take overall impacts into consideration.
And the list just goes on and on.
So, what’s the answer? Which approach is best for driving improved pricing outcomes? Which approach should you choose?
Frankly, it’s a false choice. These aren’t the only options and you don’t have to pick one or the other. In fact, you can choose to do both.
The “third way” for many is the Pricing Center of Excellence. By applying the Center of Excellence model to the practice of pricing, companies are able to achieve a high degree of centralized pricing oversight and influence, while enabling better and more responsive decisions at the point-of-need.
With a Center of Excellence, it’s not an “either/or” decision. In a very real way, a Pricing Center of Excellence is both centralized and distributed. So you might say that it’s more of a “have your cake and eat it, too” type of decision 🙂
Building a Pricing Center of Excellence
Experts have long argued that centralized pricing is the ideal model for driving performance improvement. But these days, companies are finding success taking a different approach---the Pricing Center of Excellence.
Where Should the Pricing Function Be Located?
Should Pricing report directly to the CEO? Should it be located in Sales, Marketing, Product, or Finance? While none of these organizational locations is perfect, through our research, we've been able to identify and document some of the common pros and cons associated with each location.
