Automated pricing can analyze markets' ability to bear increases and make changes quickly
Everybody does something about pricing but nobody talks about it.
While that's just the opposite of how people feel about the weather, pricing decisions can be just as frustrating and at times, equally disastrous. The cost-plus-profit approach is too simple, and autonomous salespeople often undercut the best-laid pricing plans anyway.
"The sad reality is [that] the majority of pricing decisions in many companies are made on a subjective basis," said Eric Hills, VP-marketing for Zilliant Inc., a pricing- automation tools company. Hills says it's not uncommon for companies achieving more analytical rigor in setting and adjusting prices to realize and additional 10% to 20% in net income.
"What's relevant about pricing is determining if you got the best price or whether you gave in too much to greed and fear and left that extra money sitting on the table," he said.
But going for automation does more than help buck up antsy salespeople. Ignorance of market and price segmentation can also leave money on that table. Companies have multiple—sometimes thousands of—"micromarkets" that, if addressed carefully with the proper pricing, can realize unexpected revenue.
Leveraging analytics
Other big players in the pricing-automation field include PROS Holdings and Vendavo Inc., although many companies still do their best with home-grown solutions using electronic spreadsheets, pulling data from back office applications such as SAP. The most sophisticated pricing-automation tools resemble marketing analytics in that they sit on top of databases or business intelligence tools and sort though a company's customers, products, markets, regions and history.
As with marketing analytics, the ultimate goal—to fine-tune individual customer tactics by understanding strategic patterns—only becomes possible for companies with millions of automated transactions.
"[If you're] looking at individual sales transactions, [you] can get mired down in anecdotes," said Matt Johnson, a pricing expert with consulting firm Simon-Kucher & Partners. He said automation's biggest impact is in helping to decide to move prices up in a particular market segment, for example, simply because that market can bear it.
Niche applications
Sometimes pricing-automation solutions fit into subcategories of need.
Consider EchoQuote, a company whose technology instantly supplies budgetary (not final) price quotes via email for b2b companies loath to provide costs on their Web sites. EchoQuote's produce enables companies to capture interested leads early in the sales cycle without "commodifying" their products via a published price list.
"Some people just want a quick answer and go from there," said Johnny Klemme, president of K.L. Security Enterprises, a seller of ioSafe computer backup systems, who uses EchoQuote. "We need to get quotes out fast. There are only four of us here, and managing those leads is a big challenge."
Still, the most sophisticated pricing opportunities remain the purview of much larger enterprises. Here, marketing isn't providing prices: the software is—by looking at a company's history and the deals it's done in the past.
"The reason salespeople get away with over-discounting is that they walk into the vice president's office and claim their deal is different than any other," Hills said. But automation can find that 1% of all deals that closely match, or what Hills calls the "pricing peer group," so the quoted price makes sense.