How To Boost Revenue With Pricing Software
November 8, 2011-
Story by Tim Girgenti
Story courtesy of CRN.
Pricing software is an offering well worth IT solution providers’ time and attention. It’s a sticky, high-ROI solution tied to executive imperatives – not a commodity – that gets resellers in the door to speak with their customers in the corner office. PROS Chief Marketing Officer Tim Girgenti underscores how pricing software adds value to companies as well as to the solution providers that adopt the software into their portfolios.— Jennifer Bosavage, editor
Companies today face unprecedented business challenges to increase margins, grow market share and improve their overall financial performance. With volatility in the commodities markets and global currency fluctuations, organizations have never experienced greater turmoil or risk in delivering profitable results, nor have CEOs and CFOs faced greater pressure from their shareholders. A recent study by Accenture revealed that nearly 75 percent of B2B companies list price optimization as one of their top three strategic initiatives. Yet only 25 percent felt they had the proper technology in place to enable true price optimization or to enforce price governance.
The situation is exacerbated by intensified pricing pressures from more sophisticated buyers, ever-increasing price transparency and formidable competition from around the globe. Companies are confronting how to price products in a manner that best serves their customers, at a price they’re willing to pay.
Equally as challenging, sales teams are ill-equipped with the tools they need to fully understand the profitability of every transaction. They often rely on limited information and past sales experience to determine how best to price their products and services. Moreover, most sales organizations instinctively believe that the bigger the volume, the better the discount, without regard to myriad factors that ultimately determine profitability. Without institutional guardrails—and pricing insight and guidance—companies lose confidence, believing they no longer have control over prices. Anecdotal evidence underscores the gravity of the pricing dilemma:
- An automotive parts company discovered a large percentage of its $78 million freight charges were not passed on to customers, which was a direct hit to their profitability.
- A large equipment rental company makes 2.5 million pricing decisions every year, each a potential point of profit failure. They wanted a safety net to ensure the best pricing decisions were made.
More than ever, enterprises and midmarket organizations alike are abandoning spreadsheets to develop their pricing policies for much safer practices found in pricing software. While spreadsheets may work in organizations with a small number of products in their portfolios, for those with a few hundred or even tens of thousands of SKUs – and perhaps even more customers – the calculation delays spent making decisions just don’t work at the speed of business today.
How can pricing software help? Pricing software solves three primary problems that every B2B company faces:
1) What’s the right price for each and every one of my products?
2) How can I more quickly take pricing actions when my supplier costs change?
3) How can I protect against rogue discounting that could erode my profits?
Companies are searching for better, faster and more efficient alternatives to keep their customers happy and their companies profitable. While pricing solutions have typically been the domain of enterprise organizations, even companies with as few as ten products should consider using pricing software. Today, they too can take advantage of options for increasing their margins, without sacrificing the loss of hard-earned profits, all enabled by the help of the reseller community.
Last winter, Berkshire Hathaway CEO Warren Buffett offered a stunning assessment that he rates businesses based on their ability to raise prices and sometimes doesn’t even consider the management team. Buffett told the Financial Crisis Inquiry Committee that “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
We’ve heard time and again about the many organizations that have attempted to defer losses by slashing costs, eliminating jobs, reducing budgets and closing operations. If these companies had used pricing tools to precisely identify where they have pricing power, the outcomes may have been dramatically different. The fact remains that every company has pricing power; they simply don’t know where or for which customers or products they have leeway. By contrast, companies that strategically manage pricing are typically ahead of their competitors, armed with a far greater understanding of their businesses.
In the Gartner MarketScope for Price Optimization and Management Software for B2B, 2011, Research Vice President Michael Dunne makes a strategic planning assumption: “Through 2014, investment in price optimization and management software will help increase gross margins, on average, by more than 2 percent.”
In a recently released Accenture study, “Going for Growth: The Role of Price and Cost in Driving High Performance in a Volatile Global Economy,” a full 70 percent of the executives surveyed placed price optimization as one of their three most important initiatives. Accenture also notes that 75 percent of those companies feel they don’t have pricing capabilities to support their businesses, and their pricing strategies aren’t tightly aligned with their overall business strategies.
The study further notes: “But when a company develops a deep understanding of how its different customers and customer segments perceive the value in what the company offers, and then uses that insight to variablize its cost structure so costs can remain in synch with revenue and value, it is better positioned to grow profitably in what is likely to remain a volatile economy for some time to come.”
Not only does accurate pricing provide companies with greater profitability, but it also allows sales teams to respond more quickly, close more transactions and increase customer satisfaction – a reseller value proposition that’s hard to beat.
CEOs and CFOs have invested heavily in new technologies, searching for the Holy Grail of how to maintain profitability. Resellers should pay attention to pricing and pricing technologies, which are strategic to C-level executives. For a company with $100 million in revenue, pricing software can add $2 million in hard-dollar profitability. That’s an ROI that will get anyone’s attention.
For resellers, this sale to the executive suite reflects the level of emphasis and attention they’re looking for to ignite growth. When they make the decision to adopt pricing optimization, the profits are there for the company – and for the reseller community.
That’s the kind of value proposition resellers want to offer.