If you think the average motorist at the gas pump has been sweating recently, consider the plight of PPG Industries, specifically the big chemical company's industrial coatings group.
The unit offers paint products and other coatings that rely almost entirely on petroleum derivatives, and as a result the past few years have seen a major challenge to adjust pricing as the cost of raw materials escalated.
The early going was a nightmare. The North American region offers about 30,000 products and closes almost 1.2 million transactions annually. According to Wyatt Aasen, the group's manager of planning and analysis, the business never really had to extensively adjust its prices during decades of oil-price stability. But as costs jumped, the organization "awkwardly churned through three price increases in 18 months with great angst," Aasen said.
"Everything changed dramatically overnight," he said. "You might conveniently adjust an individual product, but how could you do something like that quickly across an entire base of thousands of customers and tens of thousands of products?"
At the recommendation of consulting firm CRA International, the group considered pricing automation solutions vendors, eventually selecting Zilliant Inc. Aasen said he and his team targeted three basic benefits from the tools: The first was complete sales and cost visibility into PPG's numerous products.
"We're talking about being able to slice and dice your business in ways you could only dream about [before]," Aasen said. "A lot of companies have databases that give them basic sales and gross margins, but the problem is it usually doesn't go down to an income level," he said. "Also, at the gross-margin level, you may not see the impact of things like discounts, rebates to key accounts, all sorts of incentives or contractual obligations."
Beginning in 2006, the PPG group installed Zilliant's analytics tool to look at income by product, market segment, customer and product type, as well as other factors.
"We used to spend all our time doing research and preparing analyses. Now we can focus on high-level adjustments so if costs escalate, we immediately understand where they're impacting," Aasen said.
A second benefit the group hoped to obtain from pricing automation was price management and enforcement. Historically, the group's sales force had had great latitude in setting prices. By deploying Zilliant's Deal Manager tool, which is being installed now, Aasen said he hopes to give the organization oversight as to how an individual price compares with similar PPG products in the marketplace, so proposed prices aren't too high or low. It should improve sales' ability to develop effective proposals and electronically route deals for approval if they fall below threshold limits.
Finally, PPG looks to automation to eventually give it recommended prices based on market realities. In essence, the tool analyzes behavior characteristics of customers to customize price recommendations for each, accounting for such factors as whether the customer buys in bulk, purchases far ahead or is highly valued for other reasons.
"I can't overemphasize the importance of sales … being smart about what's going on in the marketplace with a particular account and being able to effectively negotiate price" Aasen said.
Aasen said it's too early to see margin improvements yet. But he said that over the past two years the group has already recovered its investment in pricing automation tools just with analytics.