CRM - October 2008 - (Page 36)

PRICE OPTIMIZATION us and many other businesses, price is cost-plus, then some negotiation. Customers can demand a huge amount of service—we could have been passing that along in our pricing, but we weren’t.” Each customer requires a different amount of service. The question is whether a business understands its service component, and can drive it into price. “There are two kinds of customers,” Aasen says. “Some already have a price expectation. You give them a reasonable price, and they place the order.” Price optimization solves that equation, balancing value to the customer against profit to the vendor. Other customers, however, want to negotiate—and price optimization in the negotiated sale picks a good target price that has enough room for the vendor to maneuver. “Either way, it makes the difference in whether you leave money on the table,” Aasen says. But aren’t salespeople—good salespeople, anyway—supposed to be the masters of getting the most out of a sale? Maybe, but each layer of complexity added to the product, the partnerships, or the terms of delivery makes the salesperson’s load exponentially greater. “The sales rep can’t do all this math in his head, and he doesn’t have the big picture,” Aasen says. Still, PPG encountered pockets of resistance when Zilliant’s software became the core of the pricing process. “People who were well entrenched or fiercely independent didn’t want to jump on the new processes, but executive buy-in defused that,” Aasen says. His sales reps now have the power to quickly produce excellent quotes for the simpler deals when needed, he adds, but PPG’s administrative pricing staffers “are the real experts” when bigger and more-complex engagements are on the table. Price optimization also adds consistency. “Sales reps’ aggressiveness used to weigh heavily on the pricing decision; that’s largely been removed,” Aasen says. “We now base the price on attributes, and we can produce a quote very quickly.” The reason is that it’s based on statistics: margins versus attributes like size of the order, a customer’s buying habits, and the level of service required—in other words, behavioral segmentation. (See “Oh, Behave!,” January 2008, for more on behavioral segmentation.) “For example, is the customer a good planner or a poor planner—the sort of data that’s well established in the CRM system,” Aasen says. “Differentiated pricing is something many companies are trying to get to,” Bandy says.“‘How do I put pricing at the very forefront of what my sales team does every day?’” Price optimization answers that question, but it’s not the only pricing technology. (See sidebar, “Check the Pricing Tag,” left, for other pricing efforts.) CHECK THE PRICING TAG Gartner identifies three different but related topics in pricing software, of which price optimization is only one. • Price analytics—This is the application for exploring transaction histories to spot problems and inconsistencies, or to reveal new opportunities. • Price optimization—Gartner describes this as “a modeling environment for developing and reviewing ‘what-if’ scenarios against elasticity curves based on segmentations (such as sales channel, product, customer, industry, or competitive groups) and employing a statistical engine that executes pricing models on demand.” In short, it’s the sandbox where you play with the results from price analytics to achieve the best pricing results. “The ultimate benefit of pricing optimization is uncovering price opportunities and potential problems before they emerge during execution,” states Gartner’s March 2008 MarketScope for Price Optimization and Management. “This differs from price analysis in that it is more predictive in nature, compared with the analysis of historical data.” • Price execution—These are the tools that let businesses put their analyzed, optimized prices into practice. It’s the framework for automating the deal-approval process. “In addition, price execution should encompass price-list management capabilities to improve the generation, management, communication, updating, and retiring of price lists and associated terms and conditions or agreement language,” Gartner states in the report. “The potential for this market is significant, because defining and defending optimal prices is a fundamental imperative for enterprises responsible for producing returns for stakeholders,” the MarketScope states. Traditional approaches—such as the management cabal tweaking its spreadsheets— aren’t getting the job done anymore, and the software capabilities are finally there for businesses in almost every industry. Offerings in price optimization software, the report concludes, “have evolved sufficiently to appeal to a broader audience of enterprises that are considering IT measures and are seriously concerned with systematically improving pricing practices and strategies to increase margins and sales.” —ML WHAT DO I LOOK FOR? Since price optimization is just now approaching the peak of its popularity, it’s probably best for potential users to seek options close to home. “In the early stages, you’re better off selling into a few verticals where you can perform best,” Hills says. “It’s like the bowling pins analogy from Jeffrey Moore’s Crossing the Chasm—you knock over a few at a time, and build up to throwing strikes. Eventually you have to go from early adopters to the mainstream.” Hills advises prospects to look at and talk to a particular vendor’s customers. “If they www.destinationCRM.com 36 CUSTOMER RELATIONSHIP MANAGEMENT | OCTOBER 2008 http://www.nxtbook.com/nxtbooks/crmmedia/crm0108/index.php?startid=24 http://www.nxtbook.com/nxtbooks/crmmedia/crm0108/index.php?startid=24 http://www.nxtbook.com/nxtbooks/crmmedia/crm0108/index.php?startid=24 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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