July 19, 2016
Working in Business Development, I have a lot of discussions with prospects. More often than not, those without a solution in pricing tell me that they don’t need one — they successfully use Excel.
Well, I do respect those Excel experts (black belt or not). They can do amazing things with this tool. But is it really sufficient to use Excel instead of a pricing solution?
The first question would be: Is Excel capable of handling large amounts of data? As a matter of fact, in version 12.0 it can handle 1M rows and 16,384 columns. From that angle there is no problem.
But interestingly, a recent pwc report pointed out: In today’s competitive markets, pricing strategies depend on a complex set of factors. Proper pricing doesn’t just affect margins — it also helps determine a product’s image in the market, which segments are likely to buy it, and even which distribution channels will carry it.
I fully agree, and as mentioned in the above report, segmentation is vital to improve margins. But how do you incorporate segmentation models into Excel? Virtually impossible!
Why is segmentation so important? When you use a cost-plus calculation and use this price for all channels, you miss out on valuable margin. Let me give you an example. Let’s say you sell truck tires. One channel is selling them to customers using the tires for dump trucks. They are not concerned about safety at high speeds. They want a low-cost product that is durable. The other channel is using the tires to fit buses traveling long distances at high speeds. Since the buses have people on board, they will look at a highly reliable, (possibly) certified model and will be willing to pay more to ensure the safety of their riders. Each customer has a different purpose for buying your product; one price does not fit all. To capture the importance of segmentation, the question should always be: What is the customer willing to pay?
Excel, for all of its benefits and qualities, cannot reach the scope of detail a pricing professional needs. And this is only one aspect. Here are three more features that need your consideration for a successful pricing solution:
System Integration: You cannot easily integrate your Excel price list into your ERP system. Manually keying in changes is fraught with risk of error. What if you could automatically update your ERP system moments after you rippled a price change through your complex hierarchies, instantly ensuring the correct price is available for newly placed orders?
Deal Approvals: You simply cannot manage a deal quote process or even a deal desk using just Excel and email. We all know the pitfalls of email-based approval processes: long arguments about deal profitability, approval hierarchy, my data vs. your data, “sharpening our pencils” because the deal is “strategic.” What if you were all looking at the same data, with agreed upon metrics, and clear ownership by decision-makers — all executed in a centralized repository? And doing that on your tablet or smartphone!
Price Optimization: You cannot easily incorporate “pricing science” into your data by yourself, and even if you could create the world’s best macros, it would not be sustainable because models change with new segmentation approaches, updated competitor price list information, and supply and demand information. What if you could easily change your segmentation model in your B2B pricing approach through a simple user interface and then model the impact of that change before you “took it live?”
These are vital points everyone must consider when looking at the alternatives and possibilities for a pricing solution. It’s all about getting the most profit out of your pricing tool. Excel is a great tool, but it glosses over too many gaps when working as a pricing tool.
As Richard Quest says, “Whatever you do, make sure it is profitable.”