Madrid, Spain – The Pricing Director plays a key role in companies that provide services on the Internet, and this position has acquired greater strategic relevance with the recent expansion of e-commerce. The change has been driven by sectors that market a large part of their goods and services through the Internet, including the consumer products, travel, hotel, amusement parks, car rental, and catering sectors.
The position of Pricing Director
In the Revenue Management area, prices have traditionally been set on the basis of costs (assessed on the basis of cost analysis) plus a profit margin. This method is basically inward-looking, with the margin being calculated by analysing the customers’ preferences, the product portfolio, and the competition.
The development of e-commerce has led to the creation of sale/purchase platforms that act as intermediaries between supply and demand, on an international scale. These platforms are equipped with search engines and powerful algorithms that aggregate the information and present it to the end customer in an attractive format.
For example, take holiday planning. These days, instead of visiting the local travel agent, we fire up the laptop or tablet and immediately access a wide range of flights, hotels and activities, which we then classify by category, price or any other criteria with a single click.
Pricing goods and services that are marketed online
For these goods and services, the prices change rapidly on the basis of supply and demand and a host of other variables depending on the type of service. Price setting is therefore much more complex than ever before.
All of the information is available on the web for service providers and their customers in real time. In this environment, price is a key variable. E-commerce platforms aggregate all of the information available at any one time, and use powerful software programs to analyse the impact of price on supply and demand curves, by customer segment and geographical region.
Pricing is an interactive process based on trial and error. Prices are set on the basis of market forces: supply, demand, and competition all trend in a way that is similar to what happens on the stock market.
Online goods and services compete in an efficient market where all information is accessible to everybody. Pricing is adjusted dynamically on the basis of supply, demand, and differentiation.
Profile of the Pricing Director
The ideal Pricing Director is a mathematician with management competences, the capacity to make quick, logical decisions, and a strong sense of strategy. This means that a good Pricing Director must have the capacity to lead teams, to understand and manage the human aspects and to comfortably handle ambiguous situations. At the same time, they must be able to predict the direction in which the market will move, and to use the information provided by the prices to guide the company strategically.
Mathematician: the digital world in general – and e-commerce in particular – is governed by algorithms, and there is a high demand for qualifications in mathematics. Mathematical research is currently driven by dynamic demand. For example, the Clay Mathematics Institute (Cambridge, Massachusetts) has identified seven unsolved problems in mathematics and offered one million dollars to anyone who discovers an algorithm which will solve any one of them.
Management capacity: the Pricing Director must be able to lead large teams of highly-qualified technically-adept young people who are accustomed to making quick decisions on prices. Well-led, these bright young things will be capable of positioning the company at the leading edge of the sector – recently, many almost-unknown companies have achieved leading positions.
Fast-thinking and intuitive: the Pricing Director must be able to detect the strategy and tactics of the competition, interpret market tendencies and understand customer preferences. There must be no anxiety about making mistakes or working on a trial and error basis, and the Pricing Director must be able to adapt depending on the results.
Strategic vision is essential because the company’s approach to pricing will guide its strategy with respect to the products and services it offers, and its positioning regarding customers and competitors. Pricing strategy can determine whether a company positions itself as a leader or a follower, to seek differentiation or to change the dynamics of an entire sector.
Alvaro Arias Echeverría is the Partner in charge of Iberia and Latin America at Pedersen & Partners. Mr. Arias Echeverría brings over 15 years of Executive Search experience, having successfully completed Executive Search assignments across Europe and Latin America with a particular focus on Retail, FMCG, Financial Services, Health, and Telecoms. Prior to joining the firm, Mr. Arias Echeverría held senior positions as a Partner and member of the International Executive Committee of an international Executive Search firm based in Austria. Earlier in his career, he was a Principal with a world-leading Executive Search firm based in Switzerland and Senior Manager at AT Kearney. He was also Professor at IESE Business School where he founded and led its International Research Centre in Barcelona and Madrid.
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