Six Sigma Pricing > Measure: Build Measurements and Metrics Plan for Pricing Team Member Assessment and Incentives
This is the third in a six part blog series on how manufacturers and distributors can apply Six Sigma methodology to the pricing function to generate repeatable margin gains. This blog covers what to consider in building measurements and a metrics plan for pricing team member assessment and incentives.
All pricing practice leaders know a disciplined process is needed to create and maintain Pricing Excellence – how to measure and incent the team to achieve excellence is key.
“Discipline is the defining fire in which talent becomes ability”
– Roy Smith
Applying Six Sigma to pricing is clearly a better way to go to make pricing processes optimal – but…
How do we measure our progress?
How do we set proper incentives for team members?
This crucial step lays the foundation for success and requires building measurements and metrics to identify what needs improvement thoughtfully, completely, and in alignment with your business goals.
A company must properly identify anything that impacts pricing performance and measure it mindfully. Identifying “Critical to Quality” (CTQ) components for each person’s role in the process is foundational to correct measurements. It is very important to choose wisely which measurement is appropriate for each role and incentives must be tied to these.
Few things have the ability to motivate people more than performance measures tied to their pay and incentives. Focus on a limited set of measurements that are tied closely to profitability and then hold people accountable for their performance against those measurements.
Features of CTQ’s:
- What: must have specific and correct criteria.
- How: must have a method to measure the criteria.
- Must be impactful to you and the business
- Define what you are trying to evaluate
- Give a precise description that everyone will understand.
- Decide how you will attach a value to what you are measuring.
Measurements must be simple, possess real business impact, reflect improvements over time, and be compared to business goals and market realities.
Criteria for an excellent pricing measurement:
- Tracks the differences of value across the customer segments.
- Tracks the differences in cost to serve across the customer segments.
- Easy to measure & enforce
- How does the measurement position versus competitors price levels?
- Align the measurement with customer’s value received by using product or service
Six Sigma Master Blackbelt Greg Preuer, of SPA has created the first course designed to apply time tested Six Sigma methodology to pricing. Those who study with Greg will learn not only how to drive the pricing process but how to sustain the gains and automate the process. They will become Six Sigma experts (Blackbelt) in business process with a focus placed squarely on price management.
Graduates from this course will learn to chart a clear path to pricing improvement. They will learn each of the following steps:
- How to design and design goals which are consistent with their company’s pricing strategy.
- How to measure and identify characteristics critical for pricing success.
- How to analyze the current situation and steps along the way.
- How to design an improved alternative which moves closer to the desired result.
- How to verify that actions taken create the right results.
A Pricing Process founded on SPA’s Six Sigma Program includes the following:
- Negotiating strategy and tactics
- Value-based pricing
- Automated decision making tools
- Customer Profitability improvement plans
- Sales team selling value
- Pricing strategy and leadership
- Consistent and fair pricing architecture
- 2 to 4% growth in GM%
- Pricing based on customer sensitivity
- Continuous improvement focus
To learn how you can realize the benefits of SixSigma Pricing, contact SPA today at firstname.lastname@example.org or 216.455.1545.
The following are the three remaining areas we will dive into in future articles in this blog series that will help illuminate the path to Six Sigma Pricing Excellence.
- Analyze: use reporting tools to find opportunities to grow or challenges to fix
- Improve: build processes, systems and tools to assist teams and create reporting tools to track improvements
- Control: set and enforce pricing authority levels and repeat previous steps as continuous improvement never stops
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