Managing Automation- July 2008

agement software can reap 10% to 20% margin improvements and a 3% to 10% bump in revenue, according to Noha Tohamy, research director of AMR Research. Although the science behind the software can make for impressive revenue and margin improvements, an investment in price management technology does not come cheap. According to Tohamy, the up-front investment in pricing software is “typically upward of $1 million.” In recent months, Tohamy notes, that figure has given manufacturers pause, as the weak economy shrinks sales and management scrutinizes capital expenditures more assiduously. Yet, when higher material and labor costs paint manufacturers into a corner, pricing “might be the only lever to improve profitability,” she says. “In the down economy, there’s more motivation for user companies to really understand how they’re pricing.” In a summary accompanying her research report, “Pricing Optimization in a Down Economy: Mandate for Growth or Ill-Timed Choice?” Tohamy writes, “In an economic slowdown, establishing fact-based pricing helps sales organizations maximize margin realization in every transaction.” Schneider Electric is one company that did not THE PRICE OF BETTER PRICING wait for economic weakness or a constricting marResearch by consulting firm Deloitte shows that usket to kick-start its pricing strategy. The maker of ing price management software to buttress change automation systems and the popular Telememanagement efforts can have a substantial payoff. canique and Square D electrical products installed In a 2006 research paper titled, “The Pricing a centralized pricing department in its North AmerMyths that Could Be Holding Back Your Profit,” ican operating division more than 20 years ago, Deloitte’s Laura Preslan and Ranjit Singh describe says Neal Lyons, who heads the unit today. a Fortune 50 consumer goods maker that created Even before the advent of specialized pricing target sales prices for each product — only to software, Schneider’s 40-person team of pricing have them ignored by the sales force. When specialists practiced the three tenets of price their requests for pricing discounts were demanagement: analyzing pricing policies against nied, the salespeople would simply dip into trade market data and internal intelligence, optimizpromotion allotments to make up the difference ing product prices based on those analytics, and and cut the price. Researchers said the practice enforcing the optimized prices through sales force management practices. Manufacturers that take advantage of price Not long after the new wave of price management software emerged earlier this management software can reap 10% to decade, Schneider North America sought 20% margin improvements and a 3% to out the technology. In 2006, Schneider se10% bump in revenue. — AMR’s Tohamy lected Zilliant’s Precision Pricing Suite and rolled out the software in just six months. led to a 6% year-over-year drop in profitability. “We went too fast,” Lyons admits. In their haste Preslan and Singh cite an industrial manufacto use Zilliant’s Analytics and Optimization modules turing company whose market research showed a to assess their pricing methods and determine the 50% price variance for the same product in a certain optimal price for products, the team included some region and among the same competitors. The comerroneous data and insight. Revising the data pany issued new pricing guidelines to its staff and models pushed the project back half a year. raised its price 12%. “This improvement resulted in “We should have tested some of these models,” more than $19 million in benefits while driving a 1% he says. “My advice would be [to] do all that up increase in year-over-year volume,” they write. front. Don’t rush to push it out.” Manufacturers that take advantage of price manWith the data models cleaned up, Schneider July 2008 2007; Model N, which began in 1999 and focuses more broadly on revenue management; pVelocity, a Canadian company founded 2001; Vendavo, founded in 2000; Vistaar, which began operations in 2001; and Zilliant, founded in 1999. SignalDemand, an upstart among upstarts, emerged from Silicon Valley in 2004 with an on-demand software model that has earned it a solid base of customers. The wily veteran of the market is PROS, which traces its roots to 1985 and operates out of global headquarters in Houston. The larger enterprise software vendors have taken notice of this growing area of interest. SAP in 2005 tapped into its vast partner ecosystem to resell software from one of the market leaders, offering SAP Price and Margin Management by Vendavo. SAP’s main rival, Oracle, is navigating a triedand-true acquisition path, having bought pricing specialist Revenue Technologies in 2007. “Oracle’s strategy is to deliver by 2009 modules under the price management brand that address price analytics, price optimization, and price execution functions for E-Business Suite and Siebel,” wrote Gar tner analyst Michael Dunne in a recent research note. 31

Table of Contents Feed for the Digital Edition of Managing Automation- July 2008

Managing Automation- July 2008 Contents Take 1 HP's Acquisition of EDS May Face Integration, Global Delivery Challenges Rimini Plans to Woo SAP Support Users Rockwell Steps Up Its Activities in Software Microsoft Targets the Process of Innovation Supply Chain Standouts Honored by AMR Notes Who Are Today's Influential Thinkers? The Robot Revolution Is the Price Right? Without a Trace Harvesting the Suggestion Box Product Scan Advertiser Index Next

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