January 29, 2004   |   Rich Seidner — One of the most effective ways for any company to maximize its profits is to get its pricing right. But, amazingly, most companies still do not use profit optimization technologies to do so. As one astute business analyst recently put it: “Few address it, but every company can benefit from better pricing strategy.” You think?

Price too high and you lose business. Too low and you leave money on the table. Too slowly and you forfeit deals. And, possibly worst of all, failing to manage price execution to existing corporate policies and customer contracts is a silly hobby for companies who have too much money to squander.

It’s astonishing how few companies use price optimization technology. Kosin Huang, a senior analyst at The Yankee Group, told me that “according to the Professional Pricing Society, 30% of companies set prices based on their competitors, 22% set prices to recover costs (with margin), and just 18% of companies do research to determine the value to their customer and what that customer is willing to pay.” Huang says that understanding price elasticity (what customers are willing to pay) especially within the deal negotiation process “is a huge issue in this environment."

So, if you’re a large manufacturer or distributor, with lots of products and customers, selling through complex channels into competitive markets, you should check out Metreo, because their products can improve your bottom line. Metreo is an e-business software company based in Palo Alto, California, that delivers products that help companies plan, analyze, negotiate, execute and manage all of their enterprise-wide pricing needs. Daphne Carmeli, Metreo’s president and CEO, told me that by automating the entire pricing process (planning, negotiation, execution, and analysis), “Metreo takes out time, takes out cost, and inserts profit into the pricing process.”

Smarter negotiation
The corporate goals for any deal might be a mix of increased revenue, margin, market share, and leveraging inventory. And will be based on criteria such as which customer, products, geographical region, time of year, and competition. Metreo helps the pricing manager negotiate smarter deals that are a better match for corporate goals. It does so by evaluating each inbound request and providing pricing managers with a score that assesses each quote against applicable corporate goals and the customer’s buying history, as well as data on which quotes have lost. This score lets the pricing manager know how well the current quote request matches what the customer wants, and to what degree it meets corporate objectives.

Even more importantly, Metreo provides the manager with a set of specific recommendations that the customer is likely to accept as counteroffer. Metreo’s recommended actions include varying such factors as line-item price, unit volume, delivery date, and possibly substituting equivalent products. By understanding what this customer has paid for these or similar products in the past, Metreo is able to provide the pricing manager with specific response options that have a high probability of success, and which match corporate goals. An electrical wire manufacturer chose Metreo to decide whether business was good at the time of quote creation. Using Metreo they got smarter about quote creation and whether to accept, counter, or reject deals.

Faster execution
Faster response to inbound requests means you handle more requests, which can generate increased revenue, while lowering the overall cost of handling transactions. Metreo accomplishes this rapid response by automating the creation of responses that meet corporate fiscal objectives. For example, Eaton deployed Metreo and "has been able to reduce quote response times and quote transaction costs, improve margins, and increase win rate."

Better compliance
How can a company enforce compliance with its corporate objectives when they’ve got an avalanche of requests coming in (hundreds of thousands of quotes annually, for millions of line items), and manual processes that take days instead of hours or minutes simply won’t suffice? Metreo compares all inbound requests against existing customer contracts, so that customers can’t cherry pick prices from conflicting contracts and its sales force can’t engage in maverick negotiations that inadvertently violate corporate goals. A pharmaceutical distributor chose Metreo to insure compliance of every deal because they have multiple contracts for each customer. Using Metreo, they are able to figure out which price to offer from which contract, and whether their profits are being squeezed by the manufacturer, the customers, and the group purchasing organizations.

To maximize your profit, you’ve got to manage the whole pricing life cycle. As Carmeli says: “pricing drives your profit, but what drives your pricing?” If you’re smart, that’ll be Metreo.

About Rich Seidner
He profiles private companies with the potential to significantly alter the AO landscape. If you want to nominate a company for us to profile, please send an email to rich@svv.com