Pricing

How to Avoid Price Optimization Pit Falls

By Justin Bailey
March 27, 2018

If you’re reading this, you’re probably wondering why some dude on the internet whose company sells price optimization software is going to throw cold water on price optimization. Honestly, I’m wondering about it too, and whether I can sneak it past the editors and management.

(I guess if you ARE reading this, they didn’t catch on, a?)

Before we get into all of that, let me just put it out there that I LOVE what price optimization can do for manufacturers. Knowing where to price to win deals, what sort of deviation should kick off the right workflow, and automatically adjusting for market trends has huge payoffs. Winning more deals, improving margins, and the unsung benefits of often having fewer administrative hurdles….. It sounds like business nirvana, doesn’t it?

Before I get to the heart of the secret, let’s take a little detour first…. Have you ever attended a pricing conference? They’re good for a lot of things, although after you’ve attended as many as I have, you start to see the macro patterns that drive them. One aspect that always amuses me is the vendor section. All those software and consulting companies vying for your attention! They do so many different things…. Or do they? They all promise change, and more margin, and blah, blah, blah. As someone who has worked as both a consultant, AND for a software company, I’ve heard (and delivered) it all.

(BTW, you should definitely visit me if I’m working the Vendavo booth or listen to me speak. I’m the one drinking too much conference coffee.)

If you take a tour of all those vendors, some of them will talk about change management, others about tools, and a few others about who-has-the-biggest-PhDs (answer: everyone has PhDs on staff and math is math…. Don’t get fooled by slick sales). But the very fact that ALL those companies are there pitching different angles implies something, does it not?

That being said, are you ready for the secret?

Price Guidance

When you say you want optimized pricing, that isn’t usually what you mean. What you really want is

…to stop having low margin deals sneak in or,

…the territory reps to do exactly what their management would do but without bothering them.

What you need isn’t simply pricing guidance, because unless those smart pricing insights are also accompanied with pricing controls, inertia will prevail and desired financial results may not be achieved. This is why standalone, “math-y” approaches are usually doomed for failure. It’s not that the math is bad (in fact it could be totally thesis worthy) but the organization gets frustrated as the results are not adopted and margins/volumes fail to make significant advances.

The consulting firms out there will tell you that you need to spend time preparing the organization to be “ready” for smarter price guidance, and that you need to work on business process to ensure clever pricing strategies stick. And this is usually right. I LOVE working with organizations that have had all the necessary buy-in and alignment conversations, perhaps they have even been piloting a process in Excel for a while. It’s good to know what you want, even if you’re only able to achieve 10% of what you need in Excel.

Price Controls

That’s not the only way to drive impact, however. The other way is to enforce controls at the system level. Sometimes it’s by modifying the order entry system with additional hard rules, although older systems often lack a workflow framework and the multi-trigger conditions needed to make a price deviation process work for the business. If your company is a SFDC shop or quotes in some other environment with a workflow, then the optimization schema may stick, especially if the approval thresholds are optimized as well. E.g., floor, target, stretch price points but it needn’t be limited to three.

By the way, if you are SFDC shop, you should check out our optimization extension for SFDC. It’s pretty slick.

If you can’t afford consultants (or even if you can, because you’ll outgrow Excel eventually), or if you don’t have a decent quoting/approval system (or simply don’t like your current one), check out Vendavo’s approach to addressing this GUIDANCE + CONTROL problem with Intelligent CPQ.

See how Vendavo is using it’s own Intelligent CPQ and the results they are having in the webcast: Dogfooding: Vendavo Uses it’s Own Intelligent CPQ.

  • CPQ , iCPQ , Price Optimization , SFDC

    Justin Bailey

    Justin drives superior returns for his customers by delivering pricing and CPQ best practices. He brings over a decade of experience in business analytics, B2B pricing strategy, and managerial consulting to the Vendavo team. His diverse pricing experiences span everything from fabricated precious metals to medical laundering services, and he leverages that breadth to help his customers succeed with their unique pricing challenges.