Businesses are pursuing digital pricing transformation efforts to support their revenue and margin growth goals. What’s driving that?
Ad-hoc spreadsheet and offline commercial process and price-setting are still commonplace across the Fortune 1000. Based on my discussions with customers and prospective customers at Vendavo, I estimate that 75% of price-setting activities across the Fortune 500 are still spreadsheet-based and rather basic (single strategy) from a pricing strategy standpoint. It’s typical for many businesses to manage price simply relative to last year’s price.
There are downsides to retaining the archaic ad hoc processes that are often typical in businesses, namely:
- Lack of ability to react quickly to market changes, or desired change execution.
- A piece-part disaggregated approach to pricing, with a lack of ability to synchronize or even be deliberate about pricing strategy. execution for different products and services in the portfolio that should have different approaches to pricing.
- Rampant manual administrative effort where businesses support sales and marketing creativity in pricing strategy or models.
- Pervasive data errors from manual handling of data and manual insertion into IT systems.
- Lack of compliance and auditability for pricing data or changes.
- Lack of data security (spreadsheets offer portable and convenient access to pricing data, after all.
- Armies of analysts supporting custom spreadsheets, models, and one-off home-grown systems for price management and / or commercial process.
The Digital Pricing Transformation Opportunity
On the one hand, business leaders should be extremely worried about this sad state of affairs. But on the other hand, pricing and commercial process transformation present one of the greatest remaining opportunities to improve their business.
Digital pricing transformation is about online, digital, enablement capabilities to efficiently conduct key commercial activities in an organization, including:
- Automation of price setting and price administration / management capabilities.
- Process efficiency in the commercial process.
- Better decisions in the commercial process supported by analytical insights and optimize pricing / guidance.
- Sophisticated tech-enabled efforts to develop the best opinion of price for each customer/product selling scenario.
- Automation around analytic insights related to price and profit performance measurement, or price opportunity discovery in the business.
Scope of Digital Pricing Transformation
Price Setting & Price Management
Supporting effective and efficient price setting & administration in the enterprise with a centralized system for automation and establishing a central archive of pricing decisions, managing price setting, thoughtful pricing strategy execution for segments of the product portfolio, and efficiently publishing accurate information to where it is needed in the business. Managing any and all information that is used in the pricing process
Commercial Process Efficiency & Decision Effectiveness
Deployment of digital online commercial process for efficiency and effectiveness. Streamlining customer pricing decision and pricing-contract renewal process. Improving decision making with price guidance and better information.
+0.5% to 3%
Development of a better opinion of what price should be for specific customers and products. Using AI, pricing science to discover attributes of customers and products that explain differences in price, and determine customer groups that share similar willingness-to-pay so that specific price recommendations can be delivered for each segment.
+1% to 4%%
Price & Profit Analytics
Implementation of price & profit KPIs and performance measurement along with use of insights to proactively identify price opportunity in the portfolio. Automation & classification of data for pricing insights and automation that transform analysts effort from analytics production focus, to insight generation focus.
+0.5% to 1.5%
What Does Digital Pricing Transformation Success Look Like?
Any successful Digital Pricing Transformation typically has the following characteristics:
- Strong leadership and stakeholder support.
- Alignment with business strategy, but willingness to improve based on new capabilities enabled by any DPT project.
- Technology to sustain efforts and focus on pricing and commercial process improvement.
- Effort and focus allocated to tying the process and systems from Digital Pricing Transformation into the broader businesses & IT environment.
The reward? As a recent McKinsey article explained, digital pricing transformation efforts, when done well, yield “two to seven points of sustained margin improvement with initial benefits in as little as three to six months.”