CRM - October 2008 - (Page 35)

PRICE OPTIMIZATION raise the price on our customers over the years,” Aasen says.“[Zilliant’s] Campaign Manager allows you to automate the process so there are no mistakes, as there would be in a manual change.” Any business with a large catalog, or with highly configurable products, can potentially benefit from pricing software. “We run the software once a month to recalibrate our pricing model,” Aasen says. “We could do it once a year and still see a big benefit. Some companies run it nightly.” Another misconception is that pricing software can’t take into account certain intangibles, such as sales skill or the amount of service time spent with a customer. That was certainly true before, but today’s price optimization solutions can even help quantify and monetize customer touch. Many companies that used negotiated pricing didn’t even know they had a price optimization need at all until recently, says Eric Hills, vice president of marketing for Zilliant. “If you ask a customer, they’ll say their process is the art of selling— people didn’t even realize a statistical approach was possible,” Hills says. Again, some verticals had long been familiar with that approach. “In retail, travel/hospitality, etc., companies have long been aware of the ability to maximize profit,” Hills says. Room prices, flight tickets—goods that have value that expires after a certain point in time—were easier to handle with price optimization. “In other verticals, like manufacturing, the sense was always that negotiations made optimization too complex,” he says. “We cracked the code on optimizing negotiated prices.” A few things had to fall into place before pricing software could truly take off—and even then, it was hard to spread the gospel. “We developed a solution, and six or eight initial customers saw considerable returns, but it took them a while to become reference customers,” Hills says. “There’s a secretsauce aspect. We do have a challenge getting customers to talk openly—price optimization is a real competitive advantage. But awareness is growing fast.” According to Hills, Zilliant now has as www.destinationCRM.com many as 50 companies with price optimization solutions in production. Lastly, price optimization isn’t something one can just grab off the shelf and install for kicks.“These aren’t casual decisions,” Aasen cautions. “It’s a big IT move and business initiative—you have to dedicate a lot of resources. Unless you have executive sponsorship, it’s very hard.” Bandy agrees, adding that the products can be expensive and require discipline. “Don’t buy it if you’re not gonna stick to it,” he warns. That said, you might be surprised to discover some of the companies that “P didn eople ’ real t even stat ize a app istical roac h w poss as ible. ” have already implemented price optimization. While most businesses regard the use of this software as something of a trade secret, the user community is practically a who’s who of successful companies. If there’s a small knot of close competitors, similar in size, and one suddenly grabs a whole mess of market share or sees its revenue skyrocket, it’s a fair bet that the new leader just started optimizing. Pricing should follow strategy, not the other way round. In fact, Accenture has identified six discrete activities that the consultancy claims “leading companies complete as sequential steps in their pricing transformations.” (See “Plotting the Transformation,” page 34.) A trigger for price optimization that most salespeople are familiar with is the mad dash at the end of any quarter. “About 80 percent of sales happen at the end of the quarter, and as a salesperson you’re discounting heavily to make your numbers,” Bandy says. By focusing on the volume and not the value, “companies become blind to price execution until the frenzy is done,” he says—by which time it’s too late. So why do companies still do their pricing in a vacuum? Bandy identifies three reasons: • The number of SKUs—individual products—has exploded, but pricing is often still done on a perproduct basis, and that’s very time consuming. • Vendors are happy with their pricing strategies, but there’s a huge disparity between the vendor and the customer. The customer sees a mismatch between the corporate image and the pricing. • A lot of companies are going to market through partner channels, which makes pricing much more complex. WHAT DOES IT DO? Improving pricing by 1 percent can add as much as 10 percent to the bottom line, according to Accenture’s research. “It’s a frontier that needs exploration,” Bandy says. “People tend to do strategy around pricing, but there’s no customer insight, and the results are often overly complex.” PRICING AT ANY PRICE PPG wasn’t looking to solve those specific issues. Its path to implementation sounds almost pedestrian, but it speaks both to the lack of understanding and to the value of the technology. “It’s not a dramatic story, but it is real: Charles River Associates came in and performed a profitability analysis for us,” Aasen says. The consultants looked at accounts, products, and cost-to-serve; they broke out revenue by segment, type of coating, and several other metrics, trying to see if there was consistency in earnings across the board. “Their recommendation was, ‘You should manage your prices better,’”Aasen recalls. It was a novel idea for PPG. “For 35 CUSTOMER RELATIONSHIP MANAGEMENT | OCTOBER 2008 http://www.destinationCRM.com

Table of Contents Feed for the Digital Edition of CRM - October 2008

CRM - October 2008 Contents Front Office Feedback Reality�Check Customer Centricity The Tipping Point Sprinting Toward Disaster? SAP�Retains Market-Share Lead in�CRM A�Week of Strong Customer�Service CRM�on Twitter Build a Good Event and They Will Come Required Reading There's No Place Like Home The New Breed of CRM�Consultant The Price is Right...You Hope How Much Marketing is Too�Much? The�Sweet Smell of High-Quality�Service The Next Act! For An Acquisition Some Stories Never Get Old CRM�Eases the Pressure For WIKA�Instruments Secret of My Success Re:Tooling Scouting Report Pint of View

CRM - October 2008

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