Price optimization enables companies to focus on elevating everyone’s performance, even though territory, customer and product mixes differ. Industrial Distribution recently had the chance to speak with Eric Hills, Senior Vice President and Chief Evangelist of Zilliant, a company specializing in price optimization. Much of what Zilliant does is very mathematical, but their primary focus is driving improvement in business results, such as in revenues and profit growth. What Hills does is help translate between business people and technical people, between business goals and the mathematical equations needed in order to achieve them.
Industrial Distribution: What does accurate price guidance mean for price realization and elevating sales rep performance? How does Zilliant provide this guidance?
Eric Hills: The way that we get accurate or market-aligned price guidance is by using the distributor’s own data – their sales data – and applying mathematical models to that data. The models are based on this idea that price elasticity is measureable. In this way, we can predict what sort of response will happen if distributors change prices in parts of their business, ahead of actually making those changes. Ultimately, we enable them to make the best decisions about price changes before they give those prices to customers.
The idea of market-aligned or optimized pricing is something that I think a lot of businesses are becoming increasingly aware of, and certainly appreciate the value. These strategies are improving profitability and increasing market shares in markets where perhaps their current pricing is too aggressive or too high. An equally important benefit of having accurate price guidance is that it enables companies to coach their sales representatives in a more effective way about how to get the right price.
Let me explain how price guidance enables better sales coaching: the challenge you have when grading a sales rep on how well he or she has priced a D.O. or priced an agreement is normally done by relying on the margin rate. But of course, the margin that you get on any given transaction or agreement is a function of what type of customer it is, or how large the customer is, what the mix of products is or what the industry is that you are selling into. There are a lot of things that need to be factored into that scoring, that evaluation of how well someone has priced their offerings. Without the ability to contextualize how good the decision was, people fall back on margin rate and leave it at that. Quite frankly, that means it is nearly impossible to have an objective conversation with your sales reps about price because you don’t have anything – any factual basis – to say what the price should have been, allowing the sales rep to make the argument that “this deal is different” with no real market evidence. Good market-aligned guidance allows you to contextualize, and therefore measure, the effectiveness of the pricing decisions that the sales reps are making.
ID: How do you get your sales reps to follow that price guidance?
Hills: Right. Well getting sales reps to use market-aligned or optimal price guidance happens in a couple of ways. There are a couple of key aspects to an adoption program. First, is that you make it easy for sales reps to actually get the guidance. What I mean by that is, if they are already using a quoting tool - you make the price guidance available right there in the quoting tool that they are already familiar with, and make it visible so they don’t have to hit a F5 or go looking for the price, it just pops up when they enter the line item on the quote. Not only that, but you provide it to them as a range of prices as opposed to you know a specific single price point that they have to make. We found that if you make it easy to get the guidance and the guidance still leave some discretion to the rep, that most people will actually appreciate having that piece of information to get to the final price. We think about it as making it as simple as possible and minimizing any changes for the rep.
Step two is that we do measure the use of the guidance for sales reps, but we do it under the banner of price realization. In other words, we actually look at the measure as an achievement, as a positive indicator. This is in contrast to the idea of beating up on sales reps about prices and margins and so the conversation becomes “well here’s how well you’re doing and yes, here’s some areas maybe some product lines or accounts where there’s still room for improvement.” The program itself is really about sales reps and sales managers having coaching conversations and that’s the part that we believe is what makes it effective. When management gets on board, it becomes the foundation for constructive conversations between management and sales people about how well they are doing on price and margin and market share.
ID: This sounds like a great option for any company that wants something more concrete to grade their employees on, and a way to get that conversation started.
Hills: Absolutely. There are cases where 25% is not a very good margin, and then there are other cases where 25% is a great margin. If you think about that simple example, if you are a sales manager and you are sitting down with one of your sales people, these guidelines allow you to say congratulations and pat them on the back, or have a good reason for not doing so. With the price realization metric, with the market-aligned price as the way to normalize selling situation, then everybody knows whether it was a good or a bad deal.
ID: And on the technology side, how does this price optimization work in alignment with the Zilliant sales max or any of your other programs?
Hills: We take the data and we take your business strategy – not just the data, but also where you want to go with your business in terms of market share, growth, and margins – we take data and strategy and input and we provide selling guidance that ultimately tells your salespeople where the best opportunities are in their territory. What are the right combinations of products for those customers – in other words, what should you be trying to sell them? Ultimately, what is the optimal pricing for that deal or account? Margin Max and Sales Max provide the answers to those questions.
Let me give you an analogy that I think people relate to. The premise of the movie Moneyball is that the Oakland A’s General Manager, in addition to relying on his scouts to say who should he draft, started applying statistics to his prospects and watching the data. And he was successful at it. One of the important points about that success story is that the A’s went on to win the most games ever for the regular season and they did it on the smallest budget in the league. Now everybody in baseball uses stats instead of scouts. What is relevant about this story is that it is really what Zilliant is enabling distributors to do. It is allowing them to harness the data and to use math and to use statistics to produce predictive guidance. However, it doesn’t eliminate the need for good sales reps or good sales management. In fact, those skills and those contributions become even more valuable when coupled with the technology and insights that come from programs like this. With optimized price guidance and price realization, a company has an objective foundation for people to work with data and to use measures to learn and get better. It is a very exciting time in the business world for us because the tools and techniques that we offer are really making a difference on the front line and at the bottom line.
For more information about Zilliant's price optimization offerings, please visit www.zilliant.com/solutions/pricing.