The New Benchmarks for Pricing Excellence

PRICING EXCELLENCE © 2014 MindBrew, LLC. All rights reserved. This publication may not be reproduced or distributed in any form without MindBrew’s prior written permission. This publication contains the opinions of MindBrew’s research and editorial organizations and should not be construed as statements of fact. The information contained in this publication has been obtained from sources believed to be reliable, however MindBrew disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. The opinions and information expressed herein are subject to change without notice. P R I C I N G B R E W R E S E A R C H R E P O R T PricingBrew Research and Analysis Exploring the Practices and Capabilities That Are Setting New Standards for Pricing Excellence in B2B Environments THE BENCHMARKS FOR NEW While the economy continues to suffer from uncertainty about the future, there are two trends that leave little doubt... As the heroes of the downturn, procurement teams are being asked to aim for even higher savings targets moving forward. At the same time, 78% of sales teams are reporting that their quotas have increased, with only 24% being very confident they can actually achieve them. So...empowered buyers are pushing for more savings while nervous sellers are pushing for more sales...and your margins are caught in the middle. Intense Pressure Is the New Normal Most B2B companies are reporting that pricing pressure is on the rise... and it’s only going to get worse. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. 65% 35% Increasing The Same Decreasing In many sectors, a few points of margin are all that separate the winners from the losers. To capture those points, more companies than ever before are taking steps to enhance their pricing and quoting capabilities. And contrary to conventional wisdom, this push for improved pricing capabilities isn’t limited to large, multinational firms. In a recent study across 19 B2B sectors, over 35% of established pricing functions were found in companies of less than $1B. So if you’re just getting started, you could already be behind. Falling Behind Is Just Not An Option SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. In today’s climate, winning business at even just slightly higher margins than the competition can provide a game-changing advantage. In general, B2B companies are very insular and understandably secretive about their pricing and quoting capabilities. Our studies show that they will rarely look outside of their own company, let alone their own industry, for information and education about pricing. And you’ll never see a company issuing a press release detailing the new pricing capabilities that helped them capture 7.5% more margin without losing volume. So, how do know where you stand in the pricing capabilities race? How do you know if you’re even on the right track? Knowing Where You Stand Is Tough SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. Companies with advanced pricing capabilities are loathe to talk publicly for fear of losing the competitive advantage they have developed. PricingBrew interacts with tens of thousands of B2B companies across a variety of industries. The surveys and confidential interviews we conduct provide unique visibility into the most effective B2B pricing practices and capabilities---even those that aren’t discussed publicly. Through our research, we’ve identified ten areas where “best practices” have been redefined; setting new benchmarks for pricing excellence in B2B. Using this report to assess your own capabilities, you can finally see where you stand...and what it will take to catch up. Use This Report As a Self-Assessment SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. Does your company employ the ten pricing capabilities and practices that have become the new benchmarks for true pricing excellence in B2B? Some companies assume their prices are accurate and that the problem is inefficient workflows and approval processes. The leaders know that onerous processes are often the result of putting inaccurate prices into the market in the first place. They recognize that the largest gains come from having better prices, rather than moving bad prices around more efficiently. As such, they focus much more attention on enhancing their capabilities in the areas of new product pricing, list and matrix price-setting, and deal pricing and negotiation. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. Leading companies understand the big difference between efficiency and effectiveness, and they focus more attention on the quality and accuracy of the price-points themselves. SELF-ASSESSMENT QUESTIO NS Have those who are setting or negotiating prices received training in sound pricing practices? Or are they just expected to intuitively know what to do? Are your efforts focused on improving the price-points themselves? Or are they primarily focused on process steps, turnaround times, and enforcement? Are your prices based on value-to-the-customer and willingness-to-pay? Or are they simply a markup over cost or competitive price-matches? n IMPROVEMENT FOCUS For pricing purposes, some companies will use simplistic segmentation models, or even models that were designed for a different purpose altogether. Leaders recognize the power in true price segmentation models based on actual buyer behavior. They develop segmentations that reflect the dynamics of the marketplace---i.e. where and when customers are actually willing to pay more, or pay less. And because more segments equate to more pricing power, these companies strive for as much granularity as possible in their segmentation models. o PRICE SEGMENTATION SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Do you have an real, purpose-built price segmentation model? Or are you using a customer, market or product segmentation designed for a different purpose? Does your price segmentation reflect where customers are willing to pay different prices? Or is it designed around where you want to charge different prices? Is your price segmentation as granular and diverse as the market you operate in? Or do you have a model with a relatively small number of pricing segments? Leading companies recognize that real and robust price segmentation is a foundational element that can determine the effectiveness of nearly every other pricing-related activity. Most companies set prices based solely on internal and competitive factors. And they put prices into the market with little or no understanding of how the market will respond. For the leaders in this area, understanding and measuring price response is crucial. They take steps to model the variability in the market and accurately measure segment- specific willingness-to-pay and win-rate elasticity. In doing so, they significantly reduce their price-setting risks, while enhancing their ability to achieve their objectives. p MARKET RESPONSE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Are you currently measuring win-rate elasticity at a price-segment level? Or are you simply monitoring margins and discount rates? Can you accurately predict what will happen to your revenues and margins when you change prices? Or are the impacts an after-the-fact surprise? Can you accurately identify the specific price-points that will achieve your revenue and profit goals? Or are you simply responding to cost and competitive moves? Leading companies are not content to put prices into the marketplace and just hope that things work out. They measure price response and use it to set better prices with far less risk. For pricing analysis and price setting, many organizations rely heavily on human analysts. As a result, skills and man-hours are a constraint on the quality and timeliness of pricing decisions. Leaders are using predictive analytics technologies that can analyze the data, test various scenarios, and recommend the optimal actions---faster and more accurately than human analysts could ever hope to. These “smart” technologies are enabling these companies to lend sophisticated, expert-level pricing analysis to many more pricing decisions across their enterprises. q PRICING TECHNOLOGY SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Are you currently leveraging pricing technologies in your business? Or is the addition of more human resources your primary scaling mechanism? Do you make use of “smart” technologies that can recommend optimal prices automatically? Or are your prices typically determined by human analysts? Are the vast majority of your pricing decisions based on deep and rigorous analysis? Or is rigorous analysis only performed on high-runners and large deals? Leaders recognize that pricing technology can do much more than automate workflows and visualize data. It can also lend scale, speed, and accuracy to pricing analyses. In the quest for improved pricing, companies will often push pricing data and analytics out to the broader sales force. But the leaders know that most salespeople are not analytically inclined. If they were, they’d be in a different line of work. Instead of expecting their sales team to become analysts, these companies “preprocess” the data to deliver the answers that salespeople really need. And they’re finding that this prescriptive guidance, relevant to the deal at hand, maximizes consumption and utilization for decision-making in the field. r SALES FORCE GUIDANCE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Do you deliver pricing guidance or recommendations to your salespeople? Or are they expected to intuitively know what prices and discounts are appropriate? Are you delivering prescriptive guidance and answers? Or are you providing access to the data and expecting salespeople to slice-and-dice on their own? Do you deliver guidance through systems and processes your sales team is already using? Or do you expect your salespeople to log-in to new and different systems? Leading companies realize that B2B salespeople have neither the time nor the aptitude for data analysis. So they take things a step further and strive to actually deliver the answers. Most B2B companies measure and incentivize salespeople on the basis of top-line revenue. Leaders understand how this guarantees over-discounting as salespeople quickly realize that margin-killing discounts have very little effect on their wallet, but may make it easier to secure the much larger pile of revenue dollars that do. After all, every revenue dollar contributes to quota---profitable or not. The leaders in this area measure their salespeople on pricing performance and include “price attainment” metrics in their incentive compensation plans. s SALES FORCE METRICS SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Does your sales team have guidelines and limits with respect to discounting? Or do they have full discretion to discount as long as they don’t go below cost? Do you measure your sales team’s performance when it comes to pricing and discounting? Or do you simply track the amount of revenue they’ve brought in? Are your salespeople rewarded for holding the line on prices and discounts? Or are revenue dollars the only thing they are actually paid to care about? Recognizing that the behavior of the salesforce is dictated by how they are measured and compensated, leading companies align sales incentives and metrics to desired pricing outcomes. Companies often assume that centralized control over any and all pricing decisions is required in order to drive improvement. This is very painful from an organizational perspective and it can actually work against the goals of greater relevance and timeliness in pricing decisions. Leaders in this area are building Centers of Excellence around pricing, a model which provides oversight and promotes cross- functional collaboration. Pricing expertise is distributed and overall pricing capabilities are increased, while avoiding much of the conflict. t PRICING GOVERNANCE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Is your objective to develop more effective and efficient pricing capabilities inside your company? Or is your primary aim to establish a pricing department? Are you distributing pricing education and knowledge throughout your organization? Or is pricing expertise bottled-up in a single department? Do you have a pricing governance team that involves other stakeholder groups? Or is pricing a functional silo, with little collaboration and frequent conflict? Leading companies understand that centralized “command and control” is not the only option, and they’re using organizational models that distribute expertise and promote collaboration. For pricing improvement, many companies will focus most of their attention on the pricing and discounting decisions that are being made at a deal level, on a daily basis. While deal-level decisions are clearly important, the leaders understand that the decisions with the greatest influence on margins are taking place ahead of the transaction...and much further upstream. As a result, these companies are also enhancing their strategic pricing capabilities in the early stages of product development and go-to-market planning. u DEPTH OF COVERAGE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Have those involved in product or offering development received training in strategic pricing? Or is knowledge of these processes and practices just assumed? Are strategic pricing considerations an integral part of your go-to-market plans? Or is price-positioning and pricing structure usually an afterthought? Do your product and marketing teams identify and quantify differential value-to-the-customer as a matter of course? Or do they simply rely on intuition? Recognizing that many of the most impactful pricing decisions are being made well in advance of the market, leading companies are also focusing on the strategic aspects of pricing. Companies often believe that the pricing capabilities they are developing will only ever apply to pricing and discounting. But the leaders in this area realize that what they’re really developing is an analytical and data-driven decision-making capability---one that can be used to inform a number of profitable sales decisions. In addition to delivering pricing guidance, these companies use their analytical capabilities to improve prospect targeting, identify customer defections, and prioritize specific account expansion opportunities. v BREADTH OF COVERAGE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Are pricing decisions the only decisions sales needs help with? Or are they also struggling to find new prospects while growing and retaining their existing accounts? Are you leveraging data to inform profitable decisions beyond pricing? Or is all the data you’ve pulled together only being looked at in one way, for one purpose? Do your analysts know how to use data and models to answer other questions? Or are their skills limited to the area of pricing and discounting? As pricing is just one decision among a number of interconnected sales and marketing decisions, the leaders are applying their analytical capabilities to other powerful profit drivers. Most organizations---in B2B or anywhere else---tend to cling to the status quo and resist any and all change. In their own unique ways, the leaders in this area will all say something to the effect of, “If nothing changes, than this is as good as it’s going to get. And that’s not good enough.” They're driven to stay ahead of competition. They’re constantly scanning the horizon, looking for the next big improvement. They're willing to test new approaches and even fail on occasion. Instead of resisting change, they embrace it. w INNOVATION & CHANGE SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. SELF-ASSESSMENT QUESTIO NS Are your pricing processes and practices constantly evolving and improving? Or are they essentially the same today as they were a decade ago? Are you willing and able to try new approaches and test new technologies? Or does just trying something new and different a scary proposition? Are you aware of pricing innovations outside of your industry? Or do you assume that there’s nothing to learn, because other industries are different? While most organizations will only change if and when they are forced to, leading companies stay ahead by embracing innovation and the change that inevitably comes along with it. In this report, we’ve presented new best practices in ten areas of B2B pricing. Study each area. Ask and answer the assessment questions---objectively and honestly. Identify the specific areas where you can take your practices to the next level. Then, take action. The vast majority will read this report, nod their heads, and go back to business as usual; never taking a single step to improve their pricing capabilities. And that simple dynamic is what separates those who set the new standards from those who just read about them. Assess the Gaps and Get On With It SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies k&RS\ULJKW0LQG%UHZâMay not be used or reproduced without permission. “In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” - Teddy Roosevelt To further the advancement of best practices and innovation across the global business community, free distribution of this research report has been generously underwritten by: © Copyright MindBrew LLC May not be used or reproduced without permission. You’ve got millions of prices, volatile costs, and minimal influence on discounting. How do you win back control? LEARN MORE 9 A range of B2B topics from segmentation and analytics to value-based pricing and pricing technology. 9 A variety of resources from case studies and research briefings to step-by-step tutorials and video guides. 9 Exclusive monthly webinars on topics suggested by our community of subscribers. 9 Expert interviews with top consultants and real-world pricing practitioners who’ve “been there, done that”. 9 Training courses covering value-based pricing, sales force adoption, and strategic pricing processes. Best Practices and Research for Profitable Pricing in B2B © Copyright MindBrew LLC May not be used or reproduced without permission. The PricingBrew Journal gives you and your team on-demand access to an ever-expanding treasure trove of proven practices, timely research, real-world strategies, and expert insights. GET YOUR FREE CATALOG www.PricingBrew.com