Business environments are susceptible to changes and business organizations are often required to undergo constant changes to remain competitive. This occurs when an organization makes a transition from a particular state to a desired future state in such a way that it minimizes input cost and employee resistance while at the same time, maximizing the effectiveness of the change to the organization. One such organizational changes involve pricing. Most companies make price and purchase improvements as a way of maximizing profitability while in some instances, price changes in an organization are initiated by managers or business executives who have failed to understand the company's specific products or clients that are actually generating sales margin and the specific factors that truly determine the company's profitability. Ideally, the field of pricing and purchasing management has been growing steadily in the recent past and Sunflower Incorporated is an example of such organizations with pricing and purchasing management as their main focus.
Managing Pricing and Purchasing Changes
Managing pricing and purchasing changes in an organization involve an extremely complex undertaking that requires a unique view of the organization. As crucial as pricing and purchasing are to the profit potential of an organization, it is quite intriguing how the organization's desire for simplicity often interferes with the implementation of an effective process. For instance, according to research, less than 4 percent of high end companies actually communicate, manage and enforce prices and purchases effectively because while the organization's executives may be familiar with the benefits of improving the organization's capabilities, there are certain barriers that reflect the organization's inability deal with pricing and purchasing changes in terms of structure and personnel (Hinterhuber, 2004). For example, internal resistance can be a barrier to an effective implementation since pricing and purchasing data collection not only require specific technical skills but also a cross-functional and multisystem understanding of the statistics, therefore achieving cooperation among employees of different functional groups might prove to be futile. Similarly, in terms of human resource constraints, it can be difficult when it comes to engaging the right personnel for pricing and purchasing improvements as the executives are often too busy to take any additional responsibilities (Cross, Higbie & Cross, 2011). Moreover, attempting to manage processes across functional boundaries can be a serious barrier as different organization's departments have different specific functions., therefore, lack of a proper coordination and conflicts between departmental functions can hinder a dynamic and an integrated pricing and purchasing competency.
Considering a decision on pricing and purchasing changes at a large corporation like Sunflower Incorporated, Albanese ignored the extreme complexity that came with the undertaking. For instance, the company operates between two countries which are further divided into 22 regions, each with its own functional departments which includes finance, sales, storage, and purchasing. Despite sending an email to the entire organization about her appointment and function as the pricing and purchasing director, the truism can only be recognized by the pricing and purchasing departments but not across all organization's departments with varying functions. Similarly, despite asking for notification of changes in local prices, she did not consider that Sunflower Incorporated is a large company with different organizational pricing perspectives. For example, the company distributes both national and local brands some of which are in private labels to suit local tastes and practices, thereby limiting the level of insight into the local consumer's buying behavior. Furthermore, since only 60 percent of the company's items were supplied from the home office and the rest from regional offices, Albanese had no sufficient data and information to formulate an effective plan.
Implementation of Price and Purchasing Changes
According to Nagle & Muller (2017), in a large organization, pricing is considered an extremely effective indicator of continuous communication of value to customers and effectively implementing price and purchasing changes in such an organization is the most effective levers for increasing profits. Ideally, for an effective implementation of pricing and purchasing changes, one must lay an effective framework for internal and external communication. For instance, management should research the organization's past data on changes in pricing and purchasing to understand how customers have adjusted to pricing and purchasing changes in the past. This data will also indicate what prompted the previous changes and their effects on both the customers and the employees. Secondly, an effective pricing and purchasing implementation require internal collaboration and the management should build a team of internal champions to help with the process and not putting the weight on a single individual (Hinterhuber, 2004). Thirdly, the team in charge should be able to improvise an effective communication plan with the customers to be able to smoothly introduce the new pricing and purchasing scheme to the customers. At this stage, it is vital for pricing and purchasing directors to be available at the customer level to be able to thoroughly communicate their plans and receive their feedbacks if they bring them up. Lastly, for an effective implementation of pricing and purchasing changes in an organization, the management has to be able not to just informing on price changes but thoroughly communicate with all teams. This can be done through educating employees and executives on how the changes will affect them and the customers.
In the case of Sunflower Incorporated, the pricing and purchasing changes were not done successfully because Albanese as the director of pricing and purchasing omitted several fundamental processes for an effective implementation. For example, despite informing the financial and purchasing executives of each region on the new procedures, she did not explain to them how the changes would affect the individual employees in those departments and the customers in those regions. Similarly, even after implementing the changes, Albanese missed the opportunity of visiting each region to educate the executives in those regions on the new procedures and communicate the same to the customers since each region dealt with different lines of products. In addition, Albanese did not use the company's previous data on pricing and purchasing changes to learn what caused the changes previously and how they affected the customers and the employees. Moreover, Albanese took the complex task of implementing the changes on her own without building a team of internal champions to ensure the process goes smoothly. In the end, the new procedures were ignored and the regional executives continued to follow usual procedures.
Successful Implementation of Pricing and Purchasing Changes in An Organization
To be able to meet the pricing and purchasing challenges in large companies with numerous regional departments, management cannot rely on just a single internal or external perspective. This means that all available views and strategies must be considered to maximize an organization's strengths and minimize on weaknesses (Cross, Higbie & Cross, 2011). For instance, in a large company like Sunflower Incorporated, Albanese as the director of pricing and purchasing should have implemented an effective pricing and purchasing strategy. Nasiry & Popescu (2011) state that pricing and purchasing indicate the guiding principle behind an organization's efforts to price its goods and services, therefore the strategy implemented at the highest level of the organization must be in line with the overall business objectives and plan. In particular, since the pricing and purchasing strategies show the organization where it is headed, it should be focused, dynamic and regularly revised to meet changing corporate goals. Similarly, Albanese should have implemented advanced analytic and price setting. Advanced price analytic enables organizations and executives to have a unique pricing lens and to review past transactions, thereby, improving their understanding of profitability (Cross, Higbie & Cross, 2011). Furthermore, Albanese should have understood Sunflower Incorporated alignment and governance to understand the employees and the cultural factors that affect the pricing and purchasing behavior, for example, employees training, organizational structure and sales effectiveness.
Given the nature of pricing and purchasing adjustments that are often complex and impactful, the director of pricing and purchasing must be prepared for intense and lengthy efforts. For example, given that Albanese strategies and procedures have failed, she must understand where to begin to be able to reverse her wrongs and achieve the initially intended outcome. This can be done by thoroughly analyzing the company's previous data on pricing and purchasing adjustments and their effects on employees and customers. Secondly, Albanese should understand the organization's capabilities through its products, the markets, the competitors and the buyers to be able to build effective value propositions and therefore determine the right prices. Moreover, Albanese should be able to engage the sales force to utilize their expertise in a buyer-seller relationship so as to execute prices to meet the company's required margin.
Pricing and purchasing management is complex, tedious but very impactful to organizations goals and objectives in terms of realizing the overall profit margin. Poor implementation of pricing and purchasing changes invites challenges and confusion in an organization that can create institutional inertia. Sunflower Incorporated has been an example of failure through poor implementation of pricing and purchasing strategies. The organization's director of pricing and purchasing though with good intentions have completely ignored the approaches to core competencies of an effective implementation of pricing and purchasing changes.
Cross, R. G., Higbie, J. A., & Cross, Z. N. (2011). Milestones in the application of analytical pricing and revenue management. Journal of Revenue and Pricing Management, 10(1), 8-18.
Hinterhuber, A. (2004). Towards value-based pricing-An integrative framework for decision making. Industrial Marketing Management, 33(8), 765-778.
Nasiry, J., & Popescu, I. (2011). Dynamic pricing with loss-averse consumers and peak-end anchoring. Operations research, 59(6), 1361-1368.
Nagle, T. T., & Muller, G. (2017). The strategy and tactics of pricing: A guide to growing more profitably. Routledge.
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