June 28, 2019
Vendavo Response to Stephan Liozu’s State of the Pricing Management Software Industry
Today, the Professional Pricing Society (PPS) published an essay from pricing evangelist and PPS board member, Stephan Liozu on the state of the pricing management software space. In it, he outlines where pricing sits relative to other areas of enterprise software, the slow trajectory of our industry’s growth which he demonstrates with figures representative of several similar software industries, and he offers his thoughts on why.
There are several areas in his thought-provoking piece that we agree with:
1.The pricing software space has yet to take off like it should, relative to other comparable software spaces.
Software categories such as, ERP, Supply Chain Management and even Procurement are much larger than pricing and notably, growing at a much faster pace. In the midst of the mega trends that are happening at light speed all around us including globalization, digitalization and the demand for customization, the pricing space should be breaking wide open. These trends should be the driving force behind swift growth for the discipline of strategic pricing. But they have not.
There are likely a handful of reasons why this is the case and Liozu’s article points out a few likely culprits. Of particular importance in our worldview is the lack of understanding and therefore appreciation for the power of price among members of the c-suite and the board of directors. Too often, pricing, if considered at all, is seen as a tactic to help drive volume in sales, or worse, it’s seen as “pricing vs. sales.” There is real value in price optimization. Pricing and sales is an unstoppable combination, but that level of integration and cooperation needs to be driven from the top of the organization down.
2. Our industry isn’t focused on growing the pie.
Rather than growing the market and bringing creative and compelling business growth drivers to customers who’ve never before understood the real power of price, vendors are singularly focused on buying market share. Instead of educating new organizations on what price management and optimization can do for their bottom lines, vendors place too much emphasis on beating each other on price with the customers who have already bought in to strategic pricing. If there’s so much value potential in pricing initiatives, why would some vendors be so eager to give things away or start price wars? Isn’t this the very kind of behavior we tell our customers to avoid? And as Liozu points out, most of these vendors are losing money, which is not sustainable and is a risk for them and their customers. As a company we are proud to be fiscally responsible and remain EBITDA positive.
We currently swim in a smaller pond compared to some of the markets referenced above. Liozu’s article makes that point nicely. Rather than trying to drown out the others for the sake of being king of the small pond, we need to work together to grow the size of the pond for the benefit of everyone.
In a recent conversation with a CEO of one of our customer companies, I was told that pricing software vendors have reached new levels of trash-talking each other in the hopes of winning new business. The CEO felt his only choice was to pick the one supplier who didn’t engage in that conversation. This approach is good for no one.
3. The ability to demonstrate clear, consistent pricing ROI is missing.
Liozu is correct in saying customers often get ‘fuzzy answers’ when they ask about overall ROI of their deployment. And, he couldn’t be more on the mark when he says, ‘the lack of systematic calculation or ROI and payback is a disservice to our space.’
When measured at all, every pricing vendor has its own way of helping customers identify and articulate the benefits of their solution. In too many instances, that help isn’t clear or well communicated and organizations are left wondering if their significant software investment was worthwhile. Did it save them money? Did it boost their margin? While there are certainly cases of documented value and ROI, it’s still not common enough for this to be documented, and again, this does not benefit the individual vendor or the customer, nor the space as a whole.
At the risk of preaching to the choir in this post, pricing is one of the most profitable activities a company can undertake. Pricing professionals — our customers included — know first-hand that when a strategic pricing project is done well, the results are profound. Our job is to do a better, more consistent job measuring ROI and then shout our success from the mountain tops. But where do we start?
Change is hard of course, so to address inevitable challenges in large-scale pricing projects, Vendavo has created a Value Consulting Team. These experts are dedicated to working with our customers to ensure that initial value targets are established, that they’re being measured and met, and to be regularly identifying new value opportunities on the horizon. In this way, we are working to help our customers experience price optimization value very specific to their organizational needs.
Price Management Benchmarks
While we are narrowly focused on addressing our customers’ needs, we also feel strongly that such a problem-solving effort can and should scale to meet our industry’s needs too. Back to Liozu’s point, we must all work to grow the pie together. The most helpful first step to that end, we believe, is for the industry to establish and standardize on credible profitability and price management benchmarks which can then be shared openly with companies who want to compare themselves to others. Key to such an effort is increased cooperation among the leaders in our space.
Using those same standards, we also propose that leading software vendors encode these standardized ROI benchmarks into their systems. Standardized ROI benchmarks would benefit the organizations who rely on pricing tools today, the vendors who supply them, and the companies yet to discover the real power behind price. This is how we raise the bar and grow the pie.
We must recognize that in today’s digital, fast-paced business environment, pricing is a team sport. Pricing needs a seat at the big table; where there is continuous collaboration with sales leadership, and engagement with CFO and CEO. That implies we set big goals together, and measure outcomes constantly. Pricing and Sales teams must truly listen to each other, and agree on margin improvement as a common goal.
As ROI tools are built and collaboration across business units grows, industry advocacy must also be dialed up. It’s the role of a strong industry trade association to define, promote and protect the benefits of our small, but mighty industry. This is a critical piece for our growth and to-date, it remains missing. A unified voice that authoritatively shares the value of what we do will be important to achieving my first point made in this post – gaining the attention of the c-suite and boards. I welcome a conversation with other industry leaders on these topics to explore how we may expand the pie and drive more growth for the industry.
Together, we need to make some significant changes to add more fuel to the growth opportunities for our industry. At the end of the day, data and reason are on our side. Afterall, a CEO wouldn’t allow her supply chain team to run their $10 billion supply chain with Excel, so why would she allow her organization to use Excel for managing the company’s primary revenue driver – pricing? Let’s work together to increase awareness and understanding of the latent value of smarter pricing in our industries, and we will all benefit in the end.