Pricing Leadership

In one of our latest implementations, we had a scenario where we were getting lower than expected sales adoption of the optimized price guidance in one division of our large distribution customer. Initially when we were trying to determine potential causes, all seemed OK – this division had followed the same change management plan, same training schedule, etc. We had recommended two additional paths to help with sales adoption – matching commission rates to the price recommendations, and publishing a weekly ranking of sales reps and their performance against the price envelope.

Our recommended commission plan changes had largely been adopted. These changes allowed sales reps who priced according to the recommended prices to be paid a higher commission, aligning their goals with our customer’s. 

However, upon a further deep dive into the details, we learned that the head of the sales force for this particular division was not utilizing our recommended published weekly ranking. These “peer pressure” tools were designed to engage the human side of adoption to foster a feeling of competition among the sales reps. 

Each week, the top performing sales reps were noted on their achievement towards the target prices. On this particular implementation, we suggested measuring “value lost” – a metric that measures the number of transactions and associated dollars below the floor price in the price envelope. The top performers had the smallest “value lost”.  Similarly, the worst performers had the most margin dollars to gain by following price recommendations. Both lists were posted in a public place each week, without much fanfare, I might add – people catch onto this type of thing pretty quickly. 

When we asked why he did not post the rankings, the division sales lead said “I already have the financial alignment; I don’t need the rankings.” This is a common misconception, but an important one.  Sales reps in particular are competitively motivated, and using rankings such as these can engage the human side, not just the wallet side. Also, people generally do not share their compensation, so the rankings provide a competitive outlet that can be shared by the team. 

After instituting the weekly sales competition rankings, we saw the adoption of prices noticeably improve, and the basis point increase in margin for this particular division actually outpace the remainder of the company, moving from well-below-average to among the leaders in margin gain! It also fostered a sense of competition among the reps, and became a common discussion topic.

I think the lesson here is important – pricing software implementations are complex beasts, and making sure your company realizes the value that was promised via sales adoption is critical. Use every tool in your toolbox to make sure this happens!

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

In recent years, segment specific price guidance has proven to be a very successful way of introducing pricing optimization processes in the industries where price optimization is relatively new, such as manufacturing and distribution. By product group and customer segment, the sales agents are provided with meaningful reference prices that will allow them to price their deals appropriately and quickly. Especially when the set of products is large and markets are volatile, this approach is very valuable, even for experienced agents.

Would you ever use the same analytic tools to segment your agents? Many companies are leary of associating a pricing tool with the performance measurement of sales agents for good reason: this can be a major stumbling block for the sales adoption of the tool. Nevertheless, in many cases it can really pay to segment your sales agents.

Not all sales agents are equal. There are always a couple of agents that are outstanding, making many more deals than the average sales agent. When walking through a call center, you will see them juggling three or four phones while making very profitable deals. In jeans and coffee stained t-shirts, these agents may not be as glamorous as Wall Street brokers, but their skills are similar and it does not take much data analysis to figure out that these outstanding sales agents can easily earn multiple times of what a pricing consultant makes.  Why are these agents so successful? Is it the type of customers they serve, do they have special contacts? The truth of the matter is that in the vast majority of cases these people are simply very good at what they are doing.

Other sales agents are often trying to learn from these experts, taking some of their time to discuss important deals. Wouldn’t it be great if there was a more efficient way to communicate the information that these experts have? There actually is a way of doing this: by filtering out the deals and proposals of the novices and by giving more weight to the deals of the experienced outperformers, price guidance will quickly show novices and average sales agents what prices and discount experts have been able to ask recently by product group and customer segment.

The value of this approach is tremendous and there is a direct effect because novices will generally avoid some of the major mistakes they would have made otherwise. The secondary effect is that the number of sales agents that succeed – i.e. manages to make enough deals to make it worth their while – increases significantly. The cost of hiring and training new sales agents is significant, and these costs will be reduced in some cases by a factor of two or three. And of course there is the additional benefit of seeing more successful people on the work floor and in the call center. The effect of shared success is priceless.

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.