One thing that still seems to be stuck in the past is the idea of profitability, or commercial excellence. Many still refer to it as pricing and although that is an important part of it, commercial excellence is so much more. So I’d like to talk about how I view this, and why I think it is important for businesses to start to adopt this view as we move into the next era of the market.
For me, not having a pricing background is what helps me to think about this as a broader problem than just pricing. I see it as how we (you) serve your customers. How easy are you to do business with? How responsive are you with your bids? How well do you bring new products to your customers that can help them deliver their products or services? How well do you know your customers? Which ones are similar and how they are different? Knowing these things can help you be more relevant to them and ensure they continue to do business with you as opposed to putting you in the commodity vendor bucket.
What Makes Up Commercial Excellence?
Commercial excellence has 4 key components:
- Execution: The process of guiding sellers through the myriad products and services you offer so they can get to the relevant things the customer is looking for as quickly as possible.
- Administration: Building product price lists based on cost, market, competition, etc. so that you are able to achieve the maximum return on your IP.
- Segmentation: The ability to group customers into peer groups as it relates to purchasing habits. This includes volume, frequency, products, geography and a host of other contributing factors.
- Analytics: Measuring how well what you are doing aligns with what you think you are doing, as it relates to commercial excellence.
Companies that strive to excel in each of these areas are the ones who have really adopted this idea of commercial excellence and see it as not only a way to maximize profit but as a way to improve as a partner to their customers.
But where to start? I think it is important to point out that very few companies are great at all of these. The good news is that it doesn’t really matter where you start so long as you have a plan for each and a way to implement that plan.
Let me talk a little more in depth about my view on each of these areas.
For me, execution is all about enabling the people who interact with customers. This might be the sales team, or customer service or even a customer-facing portal that guides them to what they want efficiently so they can continue their regularly scheduled duties. In terms of products and services, this usually falls into the bucket of configure, price, and quote or CPQ. Many CPQ systems focus on helping you do this. But getting there faster shouldn’t be the only goal.
Companies want to guide sellers to the best deals faster. A great execution system is one that integrates with the other three parts so that the selling experience incorporates the entire strategy of ensuring that you are achieving the best deals possible. It incorporates the bottom-up pricing strategy set forth in administration as well as the segmentation guidelines and uses both to set rules or guardrails for the sellers. It incorporates workflow and selling trees so that sellers old and new will benefit.
This component is the first part of that strategy. You sell stuff. Maybe its simple stuff and maybe it’s very complex but it is stuff none the less. Who do you ensure that you are getting what you are due? Many start with the base strategy of getting back cost plus a little bump. Unfortunately, the vast majority stop there. What about the situations where you have market power? Same price? What about very competitive situations? Same price?
The reason for this is that it is hard to do. Unless you have a team of experts do constant analysis using whatever tools are at your disposal (Excel) and then rigorously updating the execution platform. And even then it’s challenging. But doing this effectively is going to set a very strong foundation for the strategy you will be executing so certainly an area to build.
Segmentation is the other half of that strategy. If you look back at all of the transactions that you have done in the past year or two, which ones are similar? How? For the ones that are similar, how consistent was the offer. I have found that this is usually something that goes unanalyzed and yet can offer the quickest and easiest return. Mining historical data will surface some obvious groups and if you are able to inject some expertise, it will surface quite a few not-so-obvious ones.
Once you understand the peer groups, you can now build on the strategy you have by targeting those groups uniquely as well as leveraging the collective experience of the company so that sellers aren’t left with just what they know but instead what the company has been able to achieve in similar situations. This information is immensely valuable to that execution pillar.
As you may have seen in my past discussions, I have a background in analytics. Analytics is crucial to any new plan or process as it will allow you to measure how you are doing against the plan that you set forward. Almost every company I interact with has some sort of analytics strategy. However, very few have the expertise to analyze commercial excellence effectively. Being able to do so will allow you to understand what parts of the strategy are working and which ones need to be adjusted.
Transforming the “Black Hole”
When I set out on this discussion, I was trying to help simplify a very important part of what companies do today as they go to market. They build and nurture leads into opportunities. They transact those opportunities through their ERP. But that gap between opportunity and invoicing is a black hole to many.
It’s the task of a good partner in commercial excellence to make this more apparent, while also making it much more accessible for you, as their client. The objective? To combine the perfect process, people and technology for turning that “black hole” into a “slide” that quickly converts more and better opportunities into transactions.