CRM - November 2007 - (Page 23)

PROFITABILITY ANALYTICS THE THREE COMPONENTS OF THE PRICING MODEL Many organizations choose to focus on one or two of the three components and can still achieve valuable results without having to tackle the entire process. Price Execution: the effective implementation of pricing processes, particularly around deal negotiation, price administration and distribution, and promotion execution. Price Execution Price Analytics: the set of tools and techniques to analyze price data at a granular level across many dimensions. Price Analytics Collect Project Information Analyze Portfolio Prioritize Price Optimization Price Optimization: the calculation of profit-maximizing prices. SOURCE: JON UTTERBACK, PRICING CENTER OF EXCELLENCE, DELOITTE CONSULTING despite the implementation of big-ticket technology infrastructures, the majority of respondents make high-level pricing decisions and revenue forecasts based on internal data generated and communicated through outdated spreadsheets. According to Diganta Majumber, director of the BPMF, one of the executives surveyed talked about the significant dollars his company had spent on technology, but likened the forecasting capabilities to that of an abacus. Close to 40 percent of respondents said they could boost company revenue by double digits with better data and improved analysis and forecast alignment. This realization is turning into hard dollars for a market that is bursting at the seams. According to Rob DeSisto, vice president of CRM at Gartner, “through 2009, price optimization technology will have the greatest impact on improving the top-line revenue and profitability of any business application.” The recent upsurge in the adoption of price optimization solutions is due to the availability of abundant CRM data coupled with the improvement in data quality practices, which is laying the foundation for success. “Organizations are becoming more comfortable using data to make automated decisions,” DeSisto says. “It’s all about the data: Dirty data in equals dirty data out.” www.destinationCRM.com The traditional disconnect between pricing and CRM was a result of siloed data, Utterback says. CRM’s strengths in lead generation, contract renewal, lead qualification, and order processing have been well integrated, but the price development and quotation approval necessary for a sound pricing strategy have typically been handled outside of CRM systems using pricing books, Excel models, and manual quotes. “I’ve had clients crunch numbers in Excel and then actually write the price down on a piece of paper during a sales meeting,” Utterback says. “It’s the most unsophisticated way to draft a proposal.” The applications themselves parallel the functionality inherent in profitability analytic solutions, albeit at a more specific level, and allow marketing managers and sales reps to exploit CRMbased transaction history, customer behavior, and market information. That data can then be cross-referenced against metrics such as product data, historical pricing models, rebates, trade promotions, freight and terms costs, invoice fees, and debts to optimize profit margins, measure customer elasticity, and to deliver the optimal combination of price versus related costs. Companies can refocus their sales efforts on highly profitable customers who are willing to pay a premium price, capturing as much “share-of-wallet” as possible with priceinsensitive customers, Utterback says. The alternative is to increase price or eliminate unprofitable volume sold to smaller, lower-value customers who receive better prices than larger, highervalue customers. While it’s smart to think of price optimization as a complement to (and tactical implementation of) profitability analytics, its scalability and strategic implications cannot be overlooked, Utterback says. This is especially true now that these solutions are coming with embedded predictive capabilities, allowing corporate to determine pricing strategies based on metrics such as product line and product/SKU metrics, and allowing C-level executives to plan sales forecasts. “These solutions have broad implications for both managerial and corporate employees alike,” Utterback says, though he warns, just like profitability solutions in general, the key lies in the methodology, not in the technology. “The key to determining who your most profitable customers are lies with which metrics you’re measuring and what methodology you’re using. Profitability analytic solutions are simply the vehicle to do that, and will help get us there.” Contact Associate Editor Colin Beasty at cbeasty@destinationCRM.com. 23 CUSTOMER RELATIONSHIP MANAGEMENT | NOVEMBER 2007 http://www.destinationCRM.com

Table of Contents Feed for the Digital Edition of CRM - November 2007

CRM - November 2007 Contents Front Office Reality Check Customer Centricity Have You Caught It? The Mother of Enterprise Information Market Focus: Technology: The Simple Truth about Complex Manufacturing Q&A: Gianforte Talks CRM Required Reading Predicting Profitability Checking the Pulse of the Contact Center Cast a Narrow Net Modern Times, Modern Methods Primos Hunting Calls Snares Efficiency Nailing It Down Moving in on Mortgage Delinquencies RDS Delivery Delivers on Service Secret of My Success Re:Tooling The Tipping Point Pint of View

CRM - November 2007

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