Pricing Leadership

With the success of PROS’ Global Leadership Seminar Series along its stop in Shanghai, China, Robert Rutledge, who leads Accenture’s Pricing & Profit Optimization practice in Asia-Pacific noted, “Manufacturers in China today face low-cost competition from places like India and Mexico and design and engineering competition from Japan and the west.”  The seminar focused on the tremendous opportunity for manufacturers in China and across Asia-Pacific to adopt advanced pricing strategies and price optimization software to remain competitive and profitable in an increasingly global manufacturing landscape. Mr. Rutledge continued, “In order for Chinese manufacturers to maintain their competitive edge, they will increasingly turn to more robust pricing strategies such as those supported by PROS’ industry-leading price optimization software tools.”

Below are two video clips of Mr. Rutledge’s presentation which the discuss the topic of Cost Plus as well as a Case Study focusing on how Chinese manufacturers can evolve from basic to more sophisticated pricing models, including pricing strategies in manufacturing and a compare and contrast with other Asian countries.

On a recent project I did a “Day in the Life” with Mark*, a sales representative responsible for selling animal health supplies to rural feed and farm/ranch supply stores. Seeing my customer’s sales force interact directly with their customers provided valuable insights that augmented the discussions we had already had with the corporate pricing team.

For example, our customer was trying to phase out a product from one of their suppliers and switch over to another, higher margin supplier. They had significantly altered the sales forces’ incentives to encourage sales to make the move. I got to see the effect first hand when Mark attempted to convince a skeptical cowboy to try a couple of boxes of the new medications. The store owner in question was not sure he could convince his customers that the new medications were just as good as the old ones. We learned that changing sales force incentives quickly and effectively changed sales representatives behavior, but the sales reps were having trouble convincing their customers to change as well.

Mark and I discussed a wide range of pricing related topics as we travelled between the tiny towns he covered. We discussed his incentive plan and he offered specific examples where it was in his best interest to drop margin as low as possible to get revenue. We visited a store where he had previously received good business at a high margin until a competitor had come in and driven him out with below breakeven pricing. Mark showed me his company’s order entry system and the pricing system that supported his pricing decisions, and suggested some improvements that would help him price faster and better.

In addition to the wealth of data that Mark had to offer, the Day in the Life also provided me with valuable perspective. Viewing a list of products takes on new meaning after you have helped sell a few; as well as hearing about a frustrating customer makes more sense when you have actually met one.

I brought those pricing recommendations back to corporate IT and we incorporated several of them in their updated sales systems.

*Name changed to protect privacy

As more and more companies are looking at pricing, they are asking themselves, “what can we do to jump start the process?” Ultimately, it’s understanding how you price.

On each of our implementations, PROS conducts a “Day in the Life” of potential users; we call this “riding in the truck” as a reminder – because we actually rode in the sales truck of one of our customers! This is the only true way to fully understand how, empathize with, appreciate the pains, and absorb the pricing practices of those users. If pricing is such a strategic lever that can make a significant difference in your profitability, shouldn’t you be willing to invest the time to understand all the corners of your organization’s pricing practices in order to squeeze out as much ROI as possible?

The question is: how do I conduct these Day in the Life sessions? I can start by telling you what not to do… don’t just ask questions! Put yourself in your employees’ shoes… if they are called into a room, and must answer a bunch of questions about how they do their job, what do you think they are imagining? No matter how you prep them, how you preface your message, or how you triage any malcontent, they will be nervous. Unfortunately, that feeling will result in them answering the questions they way they “think” you want them to answer. Anyone can put concepts on paper, which is what their answers will no doubt provide; you are trying to get at the dark and ugly truth about price and profit leakage. Therefore, take the “interview” to the next level… go ride in the truck.

But don’t just observe in the “white lab coat, clipboard, and one-way mirror” sort of way… observe AND interact. Ask “why did you [insert activity here]” until you fully understand – don’t assume anything. Then go beyond observation and interaction: solicit their feedback for how they would improve their processes. What else do they need? What could they do without? What typically causes them to sit around and wait for three days while your competitors steal your business? Get them to believe they will have an impact on the outcome, the new process that they will be asked to follow… BECAUSE THEY DO! Once you have this buy-in and belief in your employees that you want them to do better and are willing to give your time and efforts to help them, the truth comes out.  It’s only then you can work with your cross-functional team to improve your pricing processes in a way beneficial to all… because you know how your organization really prices.

True, leading-edge companies already have this figured out as they are investing in pricing for the long-haul. They are looking at the support mechanisms, training programs, and business policies that must be enacted in order to have a successful pricing initiative. This is not simple and it takes various business units agreeing to change for the mutual benefit of the company. After all, if it were simple, the company would have already figured it out and pricing would not have the immense returns that we have seen time and time again.

Have you considered how performance management and price optimization are related? Performance management is a technique used by many executives to manage both behaviors and results. Pricing has behavioral implications for your customers and your sales managers. The changes in behavior resulting from pricing policies, internal and external, can have a large impact on your bottom line if managed properly.

PROS is an active member of the Professional Pricing Society and Doug Fuehne, VP, PROS, will be presenting a live webinar on this topic in cooperation with PPS on October 6th at 12:00 noon EST.  For more information check the PROS webinar calendar: http://www.prospricing.com/webinars/

Webinars are for PPS members only, however Pricing Leadership blog readers can use the below special registration to attend the webinar even if you are not a PPS member: https://www1.gotomeeting.com/register/900702721

One more thing…did you ever take a PROS Pricing Excellence Certification Course? If you did, you now have the opportunity to transfer these credits to the Certified Pricing Professional program from the Professional Pricing Society. Contact PROS at info@prospricing.com to request a credit transfer.

Read the Full Press Release

Companies across the globe are realizing the value of pricing and doing whatever they can to reap the benefits from an increased focus on pricing. However, it is truly the leading companies out there that recognize the simple fact that pricing is not just a business function, performed by those that need to be involved. Pricing is a complex business process that must have the correct support and guardrails around it. You wouldn’t implement new SOPs without training, support, and feedback… why should pricing be any different?

True, leading-edge companies already have this figured out as they are investing in pricing for the long-haul. They are looking at the support mechanisms, training programs, and business policies that must be enacted in order to have a successful pricing initiative. This is not simple and it takes various business units agreeing to change for the mutual benefit of the company. After all, if it were simple, the company would have already figured it out and pricing would not have the immense returns that we have seen time and time again.

Think about what you and your company are currently doing to realize ROI in 6 months and even 12 months? There are not many initiatives out there that have the potential impact like pricing. Therefore, this will not be simple.  But if the desire and determination is there, taking an average 4% profit margin to 5.5% in 6 months and sustaining that gain is not far-fetched. In fact, it is probably understating the true gains.

Pricing science is often an over-used term. True pricing science is the use of fundamental scientific methodologies and logic that help companies attain remarkable returns on their investment. These algorithms are cutting edge, but still rely on fundamental principles that can be traced back through history.

In 1906, Sir Francis Galton (widely known for his infamous eugenics research and responsible for the term “reversion to the mean”) visited a livestock fair where commoners were asked to guess the weight of an ox. There were 800 guesses at its weight – and Galton recorded each meticulously. Nobody guessed the ox’s weight correctly and many were quite off — so Galton used this fact to try and prove that commoners cannot be relied upon to make important decisions (e.g. voting in elections). Interestingly enough, the average guess was almost dead on – the ox weighed 1,198 pounds while the average was 1,197 (source: NOVA Science NOW aired on PBS).

Here’s the important point — each individual has a unique perspective that added to the entire group’s collective intelligence. Your sales force, pricers and negotiators aren’t that different from the crowd at the livestock show over 100 years ago. As they negotiate deals and make important pricing decisions, they bring their unique understanding of the marketplace. Each transaction adds information about what the market is doing, where it’s going, how much your brand is worth and how much people are willing to pay for your products. Hidden in your transactional data, lies the collective conscious of the market as well as the comprehensive expertise of your sales force.

PROS helps B2B companies around the world mine their data and capture this collective conscious. Do you have a fleet of negotiators or sales personnel with the ability to set price? If so, it may be time to mine your transactional data to truly learn what the market is telling you about the price of your products – or in the good old days, the weight of an ox.

Houston, Texas – August 13, 2009 — PROS (NYSE: PRO), the world leader in B2B pricing and revenue optimization science and software, today announced that it has received a “Positive” rating in Gartner’s 2009 MarketScope for Price Optimization and Management Software for B2B.  PROS has the largest full-time staff and greatest total annual revenue in the industry, making PROS the clear leader in the pricing software space.

“Where many of our competitors have reduced full-time headcount over the last year, PROS remained consistently strong,” said Andres Reiner, EVP, PROS.  “PROS has the advantage given our industry leading commitment to R&D at 25% of annual revenue, our proven ability to successfully deploy pricing software in N. America, Europe, and Asia, and the largest pricing science team in the industry.  PROS is well positioned to capitalize on our track record as the only publicly traded and profitable pricing software company and leader in B2B manufacturing, distribution, and services price optimization.” 

Read the Full Press Release

Houston, Texas – August 11, 2009 — MSC Industrial Direct Co. Inc, one of the nation’s largest providers of industrial supplies and equipment, has selected PROS, the world leader in pricing and revenue optimization science and software, for an enterprise-wide deployment of PROS’ Price Optimization Software.  MSC’s deployment across their 96 branch network includes PROS Scientific Segmentation, PROS Pricing Guidance, PROS Scientific Analytics, PROS Price Optimizer, and PROS Deal Optimizer.

“After an extensive review of all pricing software tools, PROS was selected based on their ease of use, demonstrated speed and success of their implementations, and strong financial track record,” said Charlie Bonomo, CIO, MSC Industrial Direct.  “PROS is the best solution for MSC because PROS could meet our current and long-term needs based on their frequent product releases, ease of upgrade, and the industry’s largest commitment to pricing technology R&D which will deliver improved margins at MSC for many years to come.”

Read the Full Press Release

One of the biggest differences I have noticed in the European community as compared to the US is how different two “neighbors” might be.  For example, take Germany and France. They are geographically next door to each other; but they are miles apart in most aspects – and their approach to pricing is no different. If one company operates in both countries, it is expected that each country will have their own approach to pricing. On the flip side, in the US, while California and New York are miles apart (and there are many additional differences in addition to geography), if one company operates in both California and New York, it is much more likely there will be one approach to pricing (if not one, a least similar enough approaches that may be managed centrally). Thus, a “global pricing approach” is not a simple, straightforward strategy in Europe as is tends to be in the US.

That being said, how a company goes about implementing a global pricing strategy must also allow for and expect the complexities that currently exist in managing the business centrally. If for instance the current business environment is very much decentralized, having a central pricing strategy is not reasonable in the short term. Ignore the change management aspects for the moment, the simple logistics of understanding the diverse and disparate pricing methods and go-to-market strategies that currently exist are immense. The long-term plan should account for this and not expect one, global approach to be implemented in the near term.

However, this does not mean that companies, especially those that are very decentralized in their management, cannot achieve great value by taking a global approach to pricing. It just means that their time horizon must be appropriately set. For example, one customer here in Europe has a long-term vision that includes roll-out of a global pricing process to roughly 40% of its worldwide business (represented by countries and regions of countries) by 2015 if not beyond. Pause and read that again… “global process” for 40% of its business. ”How is this truly global?” you might ask. It’s simple: they are not planning to stop at 40% but they are pragmatic in their approach to ultimately reach 100% of their business. Regardless, as this customer has already begun the global process country by country, it is achieving great value already.

Also, setting up a global pricing process should not imply centralization of power. In fact, it can amplify the current independence and power of the remote business units. Another customer here in Europe is rolling out its global process and by doing so, is providing guardrails that its remote businesses must operate within. But at the same time, it is providing much more information to the remote business units; so much that the decisions those remote business units make are now better supported and therefore, they should be able to operate more independently within those guardrails.

In summary, companies, especially those that operate across cultural borders, should view a global pricing process as a journey. There is extreme value to be made along this journey, but it will take time. Prioritize your “low-hanging fruit” to maximize your return, but commit to the long-haul.

If you are a pricer, marketer, or are in the market for a pricing optimization solution, you have surely heard about “segmentation” and probably have some questions about exactly how it will help you do your job better. I’d like to share some insight from a high-level perspective of how this can help.

I had the pleasure of attending the Microsoft World-Wide Partner Conference last week and there were two take-aways that I wanted to share:

(1) Microsoft is placing a heavy focus on its vertical strategy this year.  This is good news. They are looking at how their solution stack meets the needs of enterprise businesses in a holistic fashion. If you are a manufacturer, it is very likely that you are looking at cutting IT costs. Microsoft wants to help you do that by offering an integrated landscape that includes non-Microsoft apps. For an example of this, see my second point. Companies are making their “bets” about enterprise software stacks and looking for opportunities to cut costs. Microsoft is working hard to be included in those decisions.

(2) Companies that use SAP should take a look at Duet.  Duet is an excellent example of an Office Business Application (OBA). This is the future of enterprise software. If you used SAP, you know the difficulty of the user interface. Microsoft and SAP have worked together to wrap core business workflows in an Outlook interface. The results are very compelling. 

We at PROS are working to extend our applications to bring a similar type of OBA experience to Pricing Optimization.