Universidad Tecnológica de El Salvador
Beyond the Black Box in Pricing
Article

Beyond the Black Box in Pricing

Rodrigo Garcia Escudero and Jeff Robinson
Boston Consulting Group, 2021
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Editorial Rating

7

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In the past, pricing was the Wild West, with a floor, a ceiling, and very little else to guide a sales team besides years of experience and strong gut instincts. When algorithms came along, companies thought they might take the human instinct – and therefore, the human error – out of pricing. But salespeople resented feeling like order takers rather than trusted professionals and balked at an algorithm doing their job. Most companies are now pursuing a human-talent, tech-informed hybrid, and according to the Boston Consulting Group, “smart pricing authority” might be the answer they’re looking for.

Summary

Smart pricing authority mitigates the drawbacks inherent in past pricing governance systems.

Each pricing governance model has its weaknesses. A centralized, scientific approach utilizes data, but outcomes are inflexible, and deals take longer to close. A tech-enabled sales discretion approach is currently a favorite, but salespeople often don’t trust algorithmic outcomes even in the best of times, and when there are large disruptions to the market environment, algorithms are only as good as their most current information.

A decentralized, sales-led model works best when margins are high (such that some profit leakage is acceptable), and when customers are less likely to bargain. The problem with this...

About the Authors

Jeff Robinson and Rodrigo Garcia Escudero work in the Atlanta office of the Boston Consulting Group.

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