Pricing for profit

Pricing software, long used in airlines and hospitality industries to increase profits, is being adopted by retailers and gaining interest by manufacturers. Industrial pricing, however, is more focused on maximizing margin rather than increasing demand. Manufacturers also have complex channels, costs, product options, a mix of contract and spot selling, and buying factors beyond price (such as promise date, volume discounts, delivery, and payment terms). Some pricing solutions now address these manufacturers’ needs.

Pricing involves policy, planning, and execution. Today, most companies’ pricing data and rules are scattered in many departments, systems, and spreadsheets. Investments in new pricing technologies can help focus pricing strategy and sales operations. Pricing software functions include:

• price formulation and optimization
• pricing impact analysis
• price administration and configuration
• multiline quote management & execution
• deal and negotiation management

While price optimization can deliver large revenue gains, many companies lack sufficient clean data on sales and price history to use it. Fortunately, just bringing all pricing data and rules together into a single platform to enforce them can deliver immediate benefits in revenue and customer satisfaction. Helping sales rapidly create quotes and negotiate within profitable guidelines can boost revenues per quote, and improve the win ratio.

Not all vendors have complete end-to-end pricing platforms. Most provide several integrated functions, and some have partners to supplement their offerings. Based on the original problem each vendor set out to solve, most solutions have historically worked best in targeted sales environments such as the following.

Variations on price lists—Companies with relatively standard products might consider Siebel or Manugistics’ Price List Optimization to manage and set prices. Many products can handle list prices; the key capability is quick, targeted change that pricing professionals, not programmers, can make.

Dynamic pricing & commodities—Maxager takes a unique approach, calculating profit per unit of time based on costs and price-setting. Vendavo, Manugistics Revenue Optimization, and some e-commerce platforms like @TheMoment work well in chemical and similar industries. Lifecycle Pricing from Metreo and Rapt also may be important in this and other segments.

Configured products—Vendors that offer advanced pricing and sales configurators such as Selectica, Trilogy, and Baan are particularly strong choices. Oracle has dynamic formula pricing by attributes as well.

Complex deals/long-term contracts—For the sales force to effectively negotiate deals, the system must consider both on- and off-invoice pricing. Revenue Technologies and Vendavo have led here, and Metreo, i2, and Selectica also deliver this. Rapt can optimize deals and hand off for negotiation.

Varied quote types—Metreo has proven its flexibility in many types of quotes, and i2, Baan, Maxager, Oracle, Revenue Technology, Rapt, SynQuest (Rapt partner), Vendavo, and Manugistics Price Quotation Optimization also have strong and flexible quoting capabilities.

Most manufacturers need the ability to set prices across channels so they look consistent to the customers. Some will also need solutions that support multiple currencies and languages, transfer pricing, chargebacks and rebates, and Web-based systems for partner use.

Savvy manufacturers are raising margins by consistently offering “solutions” and selling based on that value. To serve that strategy, many pricing solutions also support bundled pricing, portfolio pricing, and value-based pricing. A sound pricing strategy, executed consistently, is a powerful avenue to profit.

Alice Greene is President of Industry Directions, a strategic industry analyst and consulting firm based in Newburyport, Mass. She can be reached through MSI or via e-mail. Editor’s note: Julie Fraser, an Analyst with Industry Directions, co-wrote this column.

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