No € better invested than in pricing.
Pricing is a clearly untapped lever, often perceived as a complex and technical domain, left to scientists, difficult and costly to implement.
A study revealed that 87% of B2B companies feel they need to make significant progress on pricing management..
They should, beacause the ROI on effective pricing is high both in the shoert and long term.
A 1% price increase, assuming no volume is lost, increases operating profit by 11%.
Price generally has a three to four times greater effect on profitability than volume does. This applies to both price increases and price decreases.
However, companies give more attention to volumes than to prices. Salespeople often have volume-based objectives. CSO get fired if they miss volume objectives but they rarely do for pricing matters (that’s the market, folks!).
Companies also spend a lot of time and resources trying to reduce costs. Cost competitiveness is key; however a 1% reduction in your fixed or variable costs will increase your profits within a range of 2 to 5%.
Let’s summarize: 1% of
Price increase: + 11.1% in profit
Cost decrease: + 2 to 5% in profit
Given these numbers, any company should check its pricing capabilities and the level of attention they pay to them. Has any effort been made in enhancing tools & technology, resources and skills, governance, processes, or upgrading the skills of people involved?
Do not forget that price is also a powerful lever of value destruction: a discount of 5% can go as far as reducing profits up to 50%!
Our advice is simple: act now, or at least check what is at stake…
Is your pricing out of control ?
Here is a quick check.
You do not remember attending a presentation with detailed price analyses, which accounted for more information than the evolution of the ASP (Average Selling Price) by product category.
Your salesforce complains about having few elements or guidelines to set prices.
Cost based pricing is your usual pricing method, and sales people ask to have an easier access to cost information.
Your company sells thousands of products to tens of thousands of customers and you rely or try to on excel files to manage complexity.
You have rules on minimum prices or margins, but you do not know how many transactions are derogatory nor the revenue leakage they account for
Price inconsistencies are a serious, recurring problem that salespeople seem unable to resolve. In fact, they complain about it.
It takes days, even weeks for your sales people to put together and send out a complex quote with configured products or services
There is no much time, effort and expertise spent on defining the price of a new product, taking into account the added value it brings to the market.
You increase your prices almost uniformly across all product categories and generally obtain results below your objectives ?
Few people in your organization understand that a 5% drop in price can go as far as reducing profits by 50!
A story of fog and clutch.
With over 20,000 products, nearly 100,000 customers and 250 sales representatives, your business faces increasing complexity that makes it hard to reduce the risk of losing customer business to competition and even more difficult to increase sales profitably.
Much of the discussions in sales and marketing departments revolve around price transparency pushed by online players, competition on commodities and increasing customer volatility.
Indeed, despite all the efforts to provide sales reps with reports and information on which products to promote, sales trends by segment or region, or customer attrition rates, sales are beginning to decline alarmingly.
Sales representatives have portfolios that range from 150 to 400 customers, of which they pay enough attention to 30 of them and limit discussion to the top 50 products. In-house sales force deals with small customers and focuses on inbound calls and order intake.
An expression is often used at the level of the Board of directors to describe the general feeling: “we are stuck in the fog! ». The CMO compares the situation to that of a car with a failing clutch. When you press down the throttle, it slips, the car doesn’t move.
Your CFO thinks there may be a way to turn the situation around.
Not a magic wand to remove the pressure of the competition but an innovative and tool-based approach to clear the fog or fix the clutch, yes.
In short, this is software based on Machine Learning techniques in order to segment customers based on their purchases and transactions (not on a predefined customer segmentation) and then detect relevant cross or up-selling opportunities as well as weak signals of customer defection.
So what, that’s it? Big deal, all those analysis, right?
First of all, the software provides recommendations that make sense. Which is not so easy.
It then goes a step further: it provides each sales rep with a weekly list of the opportunities, specifying the customer and the product as well as the potential result.
Interested? Well, let’s be more detailed: each sales agent can accept or decline these proposals, and indicate the success or failure of the action. This gives perfect visibility at all levels of the sales organization on activity, challenges and results.
One last point that we did not mention: your business priorities are taken into account when generating these recommendations. Whether you need Sales to focus on a particular product family, customer segment, region or result (customer loss prevention or sales development).
One question you may have: when do I mention it to the executive committee?
Our advice: let’s talk; we will give you some keys for a truly impactful presentation.
Put a tiger in your CRM!
We all know that CRM is the backbone of the commercial function. It is the most deployed sales management tool in the world.
But it is also a solution that has showed mixed results. Adoption is often an issue and its impact has limitations, especially when it comes to effectively upgrading commercial performance and increasing profits.
No surprise or insight here: most of us have experienced that.
However, CRM remains the unmatched tool of the sales personnel, because of its ability to retain customer information, structure activity on accounts and support commercial actions.
Piece of diagnosis: sales people (including managers) think that the CRM does not provide enough value, or that the value it provides is not cost efficient (time spent).
Solution: can be found at two levels (without claiming to be exhaustive)
- Provide more value-added information within CRM. Customized and contextualized insights or recommendations for action every week could help.
- Sales reps may need this information even though they are not in front of the CRM screen. It would be much more useful for them to access few but relevant pieces of information, at the right time, without having to fill in screen pages while they are on the go with possibly limited access to the web.
Pricing solutions are able to push precise price recommendations to the sales reps, taking into account many price drivers related to the product, the customer, the channel used or the geographical zone and the context of the transaction. This can happen in real time, directly on the CRM or a mobile application.
We should not accept mediocre and stagnant performance regarding the use of CRM. Because studies have for long revealed that best sales people do use CRM.
CRM Adoption is a differentiator between sales force who meets its target and the rest.
Two attitudes are possible :
- Continue pretending to support your sales people by providing them with analytical tools for which they lack the time and skills (the famous “cube” where you can perform your own analysis),
- Use intelligent and powerful engines that will do the job and give them, on the CRM platform or any other relevant device, the right pricing recommendation at the right time.
The second option is like putting a tiger in your CRM (veiled message to ESSO “put a tiger in your tank”).
Appealing idea, isn’t?