April 23, 2018
Most distributors think price optimization is a good idea and the right direction to take for improved profitability. At the same time though, they wonder what it will really mean to the organization.
Are we handing over control of our pricing to a “black box”?
Is our commercial team’s hard-earned knowledge of our customers and our markets no longer relevant in today’s fast-paced, digital world?
The answer to both of those questions is NO.
Price optimization doesn’t need to be a complex set of algorithms that people without an advanced math degree can’t understand. In fact, when it’s done right, price optimization actually means you are institutionalizing the valuable knowledge of your commercial team. The most successful price optimization projects almost always have three common themes:
- The underlying methodology was easy to understand.
- The output was actionable.
- The optimized pricing guidance was defendable.
The goal of price optimization is to inform each negotiation with the needed information, at the time it is needed, to make the best decision. It’s a smarter way of doing things and the time to move away from unguided negotiations is now. It’s nearly impossible for anyone to know what the right price is in every situation without the proper guidance. And defaulting to simply categorizing products and applying a discount or margin for key items results in money left on the table.
Price Optimization Solution Considerations
If you’re ready to implement a price optimization solution, consider these points before making a decision.
- Is the solution a “black box” or can I see how each price is determined?
- Must you simply accept the determined pricing because “that’s what the statistics say?” Or can you review, adjust, and tune the optimized pricing by applying your business savvy?
- Does the solution factor in my historical transactions and provide me with the ability to move controls so I can quickly adjust for what is happening in today’s market?
- Do I have the right tools to defend each price and give the commercial team the confidence they need to achieve these prices?
For more information on price optimization, visit the Vendavo website to investigate how B2B distribution companies like yours add 1% to 3% of revenue to the bottom line with pricing solutions that support commercial excellence.