Pricing Leadership

Seth Godin’s blog post, Priming the Pump of Efficiency, reminded me of a presentation I recently attended by Cameron Davies, Sr. Director, Business Insights & Analytics, at the Walt Disney Company.  If you ever have a chance to see him speak, make sure you take it – he is excellent.

Amazon.com describes Seth as a best-selling author, entrepreneur and agent of change.  I’ve read several of his books, starting with Free Prize Inside, but what interested me on his post falls into the area of change management.

Seth basically says that change is disruptive and therefore many companies choose not to innovate because in the short term the disruption (pain) outweighs the long-term benefit (gain) of innovation.  In short, executives fear change.  However, he goes on to say that the organizations that choose to make strategic investments (change) tend to be the ones who are either market leaders, or the ones who leapfrog the market leaders (major gain).  These are the kind of companies we find that are implementing price optimization solutions.

Connecting to Cameron’s presentation – in his conclusion he has 5 immutable laws of change.  Two of these key laws, simple and powerful, are the following:

• Change drives value
• Change is essential for survival

Where Seth indicates that change is disruptive and can be costly in the short run, PROS has demonstrated the ability to generate millions in profit improvement in 30 days.  This turns this part of Seth’s post on its head in that PROS rewards you for your efforts right away.

Getting back to Cameron, his presentation outlines that industry adoption is not a zero sum game, but the sooner you start, the better off you will be.  For the innovators and first movers, Cameron projects revenue gains up to 20%, and even if the entire industry adopts pricing technology, there are still 4% to 8% gains across the board.  Cameron also presented the scenario for non-adopters.  In that case revenue declines up to 12% are possible and bad systems are equally negative.  His presentation footnotes these numbers are based on simulations done by a group at MIT managed by one of PROS’ Science Advisory Board Members.

Going back to Seth, yes, change is hard and can be disruptive.  But as Cameron says, change drives value.  Change is essential for survival.  The value of price optimization systems can be significant.  The advantage is to the innovators who choose the right tools and right partner.  Successful companies embrace the opportunity of change.

One challenge I hear again and again is the issue of how to get your sales force to use new pricing tools to promote better practices. There are many difficulties to adoption, but technology should not need to be one of them. Integrating your pricing tool with familiar sales tools, such as Microsoft Outlook, can make things easier. 

Microsoft has been making it easier for PROS to integrate our pricing expertise into their “people ready” productivity tools. They have really taken it to the next level with the Office 2007 platform.  We at PROS have focused part of our product strategy around offering Web Services to take advantage of these innovations. Through the web services, we can integrate valuable pricing capabilities, such as price quotes and deal guidance, into the user’s familiar desktop environment. Adoption is pretty well instant as there is little in the way of training required because people are using tools they already use every day.

Some best practices to consider: 1) Try to deploy to a few influential sales users to pilot. Your newest employees can become productive quickly with new tools and can also effectively influence your experience staff by their success. 2) Look to users to communicate their experiences. Involved early in the process, they can help improve the experience so that adoption is greater as systems are rolled out to everyone. 3) Work out how can adoption be measured and tracked, and decide what metrics that matter to you.

Does your pricing tool integrate with Office? I’d love to hear from you on your experiences.

Initial results are back from our implementation of PROS Scientific Segmentation and Pricing Guidance at a major health products distributor. PROS prices were rolled out in the field in mid-April and the entire sales force adopted PROS prices since the last rep went online about two weeks ago.

• Results so far: 130+ basis point improvement
• Translation: $8 million+ annual revenue improvement – this is just the start

Previously, these guys manually researched and targeted specific prices, but PROS offered optimized prices for all customer and product combinations at the same time. PROS advanced science also augments the initiatives they already had in place. If they had previously set a floor price for a product in a certain region, they are now able to recommend a scientifically optimized target price for the sales rep as well.  Their early experience with pricing actually lead them to work with PROS given our unique expertise in B2B pricing science.

One lesson you can learn from this implementation is that the sales reps help determine whether the pricing initiative succeeds or fails.  This is always true. One of the sales managers here actually instructed their sales reps to ignore the prices and caused some real margin damage. We caught this early, and offered PROS generated prices as “recommendations” while also aligning sales force incentives with the new better pricing and closely monitored results.  We were able to work as a close partner here and collaborate directly with the sales reps to make sure user adoption is high and the results are on target.    

This customer couldn’t be happier with the uplift and we’re looking forward to even better results as we continue the partnership.

Guest Blogger – Sanjay Seth – gives an update on a “Big 3” Parts Aftersales Pricing Implementation with PROS.  Sanjay is a Partner at Carlisle & Company, a firm specializing in revenue and margin strategies, market sizing, share assessment, services marketing and retention, and supply chain management.  Carlisle is focused exclusively on process initiatives related to motor vehicle parts, heavy equipment, construction, and other parts related industries.  Below are some highlights from the interview – click below to view the 5 minute interview with Sanjay.

Why Carlisle & Company selected PROS for their OEM Parts Manufacturer client:

• “flexibility of the solution, the configuration versus customization”
• “speed of the solution – you know in today’s environment everyone wants to see the value immediately, and the PROS team committed to a faster implementation than the other vendors”
• “total cost of ownership was another key driving factor”

Results to date:

“$5-6M in incremental revenue and margin in months… within 30 days we generated one-third of the cost of the software itself… and there is a lot more value to be generated down the road”

Recommending PROS to other parts manufacturing industry leaders and leaders in other manufacturing and distribution sectors:

“When I view the auto manufacturer and the service parts issues and I talk to other practitioners from other industries, I don’t see this being a unique situation for the services parts industry, you have the same issues across other industries”