News, News Coverage

The new CPQ: Are You Onboard the Pricing Revolution?

By Mitch Lee
July 18, 2017

This article first appeared on Sales Initiative. See the original post here.

The modern digital economy is all about efficiencies and effectiveness, and Big Data and the Internet of Things have increased the pace of business further, by providing more information to more users instantaneously. Organizations that don’t keep up will fall behind their competitors.

CPQ: A Brief History

Over the past 10 years, Configure-Price-Quote (CPQ) systems have been subject to a similar overhaul. Early versions of CPQ solutions emphasized configuration, allowing sales teams to combine products into customer-specific bundles and subsequently use standardized pricing and quoting lists.

More recent CPQ models use advanced configuration and quoting processes, but still ignore the vitality of pricing – retaining standard, rarely updated price lists. In this rapid digital economy, this form of CPQ leaves millions of dollars on the table.

Using price optimisation in your CPQ processes, you open up massive profit opportunities through a faster time-to-quote, increased profitability on a deal-by-deal basis, and an improved, specialised customer experience.

Such an impact cannot be ignored. For businesses to keep up, there must be significant attention given to the Pricing function of CPQ.

Look at it this way: previously, businesses would bundle products based on cross-sell opportunities or whether or not the products were Pick-to-Order, Assemble-to-Order, Make-to-Order, or Engineer-to-Order.

These products would be given a standard price based primarily on cost, and Sales would be stuck trying to generate a quote to fit the customer’s needs as well as the margin needs of their own organisation.

Nothing about this process speaks to efficiency or effectiveness. In fact, handcuffed quoting like this often leads to over-discounting and volume-driven sales tactics.

The entire CPQ process is ready to evolve, and optimized pricing is the last push the industry needs to step into its next stage of development. With an intelligent pricing system in place, here’s how the pieces work towards enhanced profitability and customer satisfaction.

Configuration

As always, we start with configuration. Products are packaged in a way that makes sense for your business situation. The impact of pricing for configuration comes later.

Value-based Pricing

From there, pricing must be value-based, not cost-based. Rather than focusing solely on cost, intelligent pricing takes historical transaction data, market data, and competitive intelligence and creates a price that fits the right customer at the right time.

Customized Quotes

Now, you can propose quotes that are better suited to your customer base and more closely aligned with profitability goals on the backend. Due to the more powerful pricing in place, reps are also receiving these optimized prices quicker and seeing real-time changes, even on the road.

Close the Loop

At this point, you will now have the insights to understand what packages are working and which ones are causing margin leakage. You can then close the loop: go back to the first step and tweak packaging and configuration processes for effectiveness.

Increased Visibility

This process leads to better visibility into win-rates, and a deeper understanding of your company’s main profit drivers. You can also better understand how your products are performing and how your customers are behaving. Are they buying more? Is there a decline in purchase frequency? These questions can all be addressed in your pricing system.

A better price enhances the CPQ system to make quoting quicker and easier for Sales; it empowers reps with data-based, customer-specific insights to win deals more profitably; and customers receive a fair price that marries the value of the product with the value added to their business.

Pricing is driving the evolution of many business practices, but the true impact can be seen most plainly here. The future of CPQ is obvious and almost novel in its execution. For the first time, the Configure, Quote, and Price processes will use advanced technologies and solutions that optimise overall efficiency and effectiveness.

With those benefits, every business should be on board with this evolution. It’s just a matter of how quickly they adapt.

  • B2B , B2B Pricing , configure price quote , CPQ , Price Optimization , pricing , sales , Value-Based Pricing

    Mitch Lee

    Mitch is a Profit Evangelist at Vendavo with 25+ years of experience in the technical, operational, marketing, and commercial arenas of the process industry. Prior to Vendavo, Mitch was with BASF and Orica in product marketing and business management, driving operational optimization, pricing excellence, and margin improvement, as well as personal engagement in high value sales negotiations. Mitch also has deep experience with raw materials supplier portfolio management having negotiated large scale and long-term agreements with global suppliers.