The Hidden Costs of Hiring a Pricing Manager for Your Retail Business

Hiring a Pricing Manager

Nothing in life is free—and much less so in business. When it comes to hiring a pricing manager, there are costs you are likely already aware of such as salary range, costs per man-hour of said salary range, and the cumulative expenses generated from corporate or company-wide benefits that can come with their employment package. But, there are also hidden costs of hiring a pricing manager for your retail business, which you must consider.

According to our research and experience, Pricing Managers typically rate their competence for their position within a range of 4/10 to 6/10. These are not exactly what most professionals would call figures that reflect true expertise in a particular facet of business. The factor that they claim limits them is the longevity of their job experience, which on average is approximately 2.5 years. They also are at a deficit due to the total length of time spent at a particular company.

The fact of the matter is that a 4/10 to a 6/10 response is very low, especially when you consider that they will occupy a key role managing the “P” part of your P&L. How much would you mind having a dentist with 2.5 years of experience who rates their ability to do a dental bridge at a score of 5/10? The good news is that 5 out of every 10 of these dental bridges will bring back your great smile; the bad news is that the other 5 will likely leave you with the same number of teeth you had before the operation.

The Right Person for the Job

What the majority of people in the Pricing Manager position have in common is that they are smart. They think like businesspeople, but they are usually less analytical. However, the opposite of this could also be the case (they may think like businesspeople, but lack the intellectual capacity to actually follow through). In the end, both options can potentially be a bad combination for your business.

A Pricing Manager needs to have both intelligence and business sense. Let’s not forget soft skills and an excellent ability to communicate accurately and persuasively. These valuable contributors to your business will be the ones who build the bridge between your strategic goals, P&L decisions, and the Category Management team in their day-to-day execution.

You’ve likely had issues in the past with your Category Management team when your Pricing Manager also oversees the Cat Man team’s operations—don’t worry, it’s normal when your pricing manager has subpar management and communication skills. Worst of all, after not being able to sort the issues within the Cat Man team on their own, they will hand over the reins of the operation back to you in an even worse state than it was before. The fact of the matter is that there is a shortage of brilliant Pricing Managers on the market (and Pricing Management is not a field of study, unfortunately, so you cannot recruit them straight out of university). Therefore, it really is like looking for a needle in a haystack when you are searching for a person with the following attributes:

– Business Mindset

– Analytical Skills

– Excellent Communication

– Leadership Skills

– Pricing Experience

You probably won’t find a superstar Price Manager with a 10/10 score in all five areas. It should also be mentioned that it is a very difficult task to recruit an existing employee for the position—someone who offers themselves as a suitable candidate for a Pricing Manager role—and hire them with the unrealistic expectation that they will simply “learn pricing” along the way in their new role. Simply put, they won’t. They won’t learn to be a competent Pricing Manager unless you guide them in this process. You will have the responsibility to show them who they can learn from, and the burden to teach them how to gain broader insight beyond your company’s environment.

The Alfa Romeo Case Applied to Price Management

When Alfa Romeo became part of the Fiat group, its engineers were given the excellent opportunity to learn from Ferrari engineers. They studied their technology and gained insight beyond Alfa Romeo’s existing experience. Since then, the company’s Stelvio and Giulia flagships have won one award after another, not only in terms of performance and sportiness, but also reliability. So, though your company is definitely awesome and can bring great learning experiences to your people, the experience from elsewhere is even more awesome due to how it broadens their perspective and knowledge.

But what if we were to add a price management solution into the picture?

In our experience, we’ve seen that a Pricing Manager with solid pricing skills who is given a powerful pricing management tool can usually get to the level of 8/10 within 3-6 months. First of all, a price management tool will expand their capabilities. And secondly, it will help them to broaden their horizon—to look at things from a larger scope using both the tool and the customer experience manager in charge of it.

A price management tool will allow them to quickly bolster their pricing skills. Keep in mind one very important fact: The manufacturers of price management software debugged the solution based on dozens of completely different retail companies before you became its end-user. This means that the opportunity to gain know-how that goes beyond your company’s experience is already embedded into your price management product!

The Downsides of Hiring an Additional Pricing Manager

CEOs who are thinking about their career growth and who care about the economic results of their retail chain are genuinely working towards expanding their Pricing Team as a key part of their business success. When top management adds a second pricing manager plus their current Price Manager, the scenario in practice would typically looks like this:

1. It takes at least 6 months to fill the additional Pricing Manager position.
2. It will take another 6 months for a current Price Manager with 4/10 skills to get them up to a 6/10 level.
3. After 1 year, you finally get to a stage where you have two somewhat competent pricing managers, but your team is still just working at 5/10 quality. You pay them X salary, but you’re getting only half of the value.
4. You are now at the stage where the first one leaves to a new opportunity, goes on maternity leave, or goes on sick leave or sabbatical—so, the only person who understood pricing at an above-average level leaves, which means you also lose the know-how and the outputs from all of the discussions you had together over the years.
5. Your second pricing manager now has all of the information in their paper notebook, and their Excel; it is a whopping 59 MB, so they have to run it overnight on a nightly basis, in hope that by 6 AM the recalculations will finish rendering. If it does not finish rendering, they will have to carry the open notebook in the car on the back seat between the children they take to school to keep on counting; at work they find out that either the recalculation fell on the wrong formula, the battery didn’t make it in the car, or the computer memory got overloaded and crashed. Once they get to work, they plug in the computer, fix the formula, clear the memory, and restart the Excel file again. If they have a second computer, they will wait until the afternoon (at best) for the results of the recalculation. If they don’t have another computer, they will have to wait. This scenario in itself likely makes this individual the most expensive person in your company.
6. After these unfortunate experiences, you now also realize that the only thing you’re going to solve by bringing in another person is to cover for the first one who is on vacation. As you’ve just discovered, the quality of your work will not improve. You may have achieved more with the first two price managers, but definitely not with a third who will force you to repeat this process all over again. The first one managed to cover 10% of the range with a quality of 6/10. Now they’re doing 15% of the range with 5/10 overall quality. How does that help you meet this year’s goals?

In the end, your role as CEO must not only be effective for your retail business, but also for your own personal goals as a professional.

A “Pretty Good” Pricing Approach

It is not unusual for a CEO to speak one-on-one with their Pricing Director, particularly before important board meetings. As you read below, ask yourself: Does any of this sound familiar?

👴🏻 CEO: In your role as Pricing Director, how proficient would you say we are at managing our pricing and margins?

👨🏻 Pricing Manager: Pretty good, I’d say.

👴🏻 Glad to hear it. How many SKUs have you been able to cover in detail in the last week?

👨🏻 About 12. They were brought to my attention by our Category Managers.

👴🏻 Oh, I see. What should we do at the end of the FY to maintain margins and increase our profitability?

👨🏻 I can’t say without having the algorithms to calculate our price elasticities.

👴🏻 Thanks for mentioning that. We have an executive board meeting next week and I can raise this matter. As a basis for me, could you prepare 3 different pricing scenarios under which we could make decisions on how to finish this FY successfully? And could you please also include a detailed impact analysis into all key metrics such as margin, sales profit, overall sales, quantity, and price image including forecasts for 1 to 6 months?

👨🏻 I remember for 5% of the assortment we were buying market price elasticities 2 years ago. I think I could outsource them to the Data analytics team, and they could calculate something for them within 1 – 2 months.

If this remotely resembles a conversation you’ve had in recent months, then I’m afraid I have some rather unpleasant news for you:

Your pricing strategy and methodology is anything but “pretty good”. 

Headcount and Total Cost of Price Management Teams 

Let’s simplify our analysis by using the dimension of chain turnover as a cumulative indicator that captures tens of thousands of SKUs, tens / hundreds / thousands of stores or big e-shops, and segments like multichannel, multi-format, multiple banners, and regions and countries.

We recommend that you consider using a price management software as soon as you think about dedicating even 0.5 FTE to price management. Why? Consider these game-changers, which we call the x10 effects:

• It enables him/her to keep their eye on the complete assortment in great detail, not just 10 % while losing price image and margins on the remaining 90%.
• He/she instantly has all price-related analytics about all SKUs, stores, e-shops, formats, regions, and countries, instead of having to wait many weeks for semi-reliable figures from the Data Analytics team about price elasticity calculations and price change impact on KPIs.

This enables your 0.5 FTE to work as 5 FTEs anytime they need. Have a look at the table below—it is a reasonable real-world headcount standard of a Price Management team today. Consider this scenario versus simply owning a Price Management software.

In the end, it all comes down to simple math. If you already have multiple people on your pricing team equipped with GBs of Excel files, ask yourself: What will make my price management team more effective and capable; +1, +2, +3, and so forth, or x10?

The total cost of your pricing team depends on your business model. But, when it comes down to a consideration of value for your investment, the proof really is in the numbers. One competent pricing manager with a solid pricing tool renders reliable results that truly benefits a retail business, whereas your additional pricing managers do not render any tangible beneficial results.

Overcoming Irrational Price Management Tool Concerns

🟠 “I will have to rely on a third party in my key competence.”

False: You rely on the contribution of your people and on the real-world industry figures and insights rendered by your competent price management software.

🟠 “It will take 6-12 months to implement the new tool, which will be a significant initial investment.”

False: Modern pricing tools offer a way to be implemented in no more than 3-6 months.

🟠 “It will cost me additional money.”

False: As demonstrated in this article, a price manager (or an additional two or three, for that matter) costs you much more. Consider what a 5/10 competent manager costs you. Go beyond costs and consider missed margins instead, as this is far more relevant.

If you have your own concerns similar to the ones outlined in this article, please talk to our pricing experts who can put your mind at ease. We are always happy to help pricing professionals discover what an up-to-date and truly competent pricing solution can do for their retail business.

Editor: Diego Fildes, Content Marketing Manager