Choosing the Best Path to Better Pricing

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 Exploring the Two Different Approaches That B2B Companies Are Using to Improve Their Pricing © 2015 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. From our vantage point here at PricingBrew, it’s very clear that “pricing improvement” has become a mainstream priority in B2B. We see manufacturers, distributors, and services companies, across 18 different vertical markets, making investments and taking steps to improve their pricing. While most of these firms have recognized the need and embraced the opportunity on their own, we have to acknowledge that some companies are simply reacting to investor demands, or just trying to keep up with the Joneses. Nevertheless, it’s great to see so many B2B companies finally getting beyond the myopic focus on cost- cutting that has been so pervasive over last few decades. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. Companies Are Now More Serious About Pricing 90% 89% 85% 75% 75% 71% 63% Percentage of Companies with Dedicated Pricing Functions Bu ild ing M at er ial s Co ns um er G oo ds Ch em ica ls Hi gh -Te ch Pr od uc ts In du st ria l P ro du ct s Bu sin es s S er vic es Fo od & B ev er ag e Generally speaking, different B2B companies will have similar goals and objectives, but very different strategies for achieving them. In a very real sense, winning in business is about choosing a more effective route to the same place. Of course, the thousands of B2B companies we interact with are all trying to improve their pricing. But they certainly aren’t all going about it in the exact same ways. At a high-level, however, there are similarities that can be classified and characterized. And we’ve been able to identify the two primary paths that are being taken. We’ve come to refer to one path as “People-Powered”, while the other has been dubbed the “Technology- Enabled” approach. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. But Companies Aren’t Taking the Same Approach The “People-Powered” approach can alternatively be described by the idiom “crawl, walk, run.” We very often see maturity models associated with this approach, and the expected cadence is sequential and step-by-step: Step #1: People Step #2: Process Step #3: Tools The basic idea behind this approach is to first put some pricing people in place. Then, using spreadsheets and manual analysis, these people will develop the necessary pricing processes and practices. Once the People and Processes are developed, more advanced pricing technologies are then implemented to add scale and automation. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. People-Powered Is the Linear, Step-by- Step Approach PEOPLE PROCESS TOOLS While the “Technology-Enabled” approach involves similar People, Process, and Tools elements, these elements are pursued, developed, and implemented concurrently, as opposed to sequential stages. The basic idea here is to leverage advanced pricing technologies as early as possible to: • Instill pricing best practices from the very beginning. • Reduce the need for manual processes and headcount. • Perform functions that just aren’t possible for humans. For the companies on this path, following a maturity model is a bit like telling a developing country they shouldn’t implement cellular networks until they’ve mastered the telegraph. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. The Technology- Enabled Approach Is Multi-Threaded PEOPLE PROCESS TOOLS Given the power of pricing, it’s easy to conclude that no matter how you go about it, achieving improvement will be well worth the time, effort, and investment. But in an environment where your competitors are likely pursuing the very same improvement objectives, you can’t just consider the absolute returns in isolation. You also have to consider whether the path you’ve chosen will actually get you to the destination ahead of your competitors, or cause you to fall behind in the race. After all, generating a 10% pricing improvement in 2 years’ time seems pretty impressive in isolation. But if your competitors can achieve a 15% improvement in 10 months, then in reality, you’ve fallen behind. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. Why Does It Really Matter Which Path Companies Pick? At PricingBrew, we’ve researched and analyzed these two approaches. We’ve studied the B2B companies that leverage pricing technology and compared them to those that don’t, across dozens of industries and vertical markets. As former pricing practitioners, we’ve even used these approaches ourselves to help the companies we’ve worked with in the past. And as a result, we’ve reached a controversial conclusion: The major performance differences between these two approaches are so significant, that we believe B2B companies going down the People- Powered path...whether by choice or simply by default...are at serious risk of falling behind in the race toward pricing improvement. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. The Differences Between These Two Paths Are Huge These two approaches are different in dozens of ways. Some differences are obvious and glaring. Others are more subtle and hard to recognize when you’re close to the situation. From our unique perspective, however, we’ve been able to identify and distill the most significant and relevant performance differences into five major categories: 1. Time to Value & Total Return 2. Scope of Influence & Impact 3. Process Efficiency & Design 4. Human Resource Utilization 5. Change Dynamics & Adoption Next, we’ll delve into each category in greater detail---explaining the differences, highlighting how they typically manifest, and discussing the business ramifications. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. Exploring the Key Differences in Five Main Categories With the People-Powered approach, the primary engine for producing results is a group of humans, using relatively manual means, to identify and execute improvements. In sharp contrast, the Technology- Enabled approach uses models to identify pricing opportunities and propagates improvements through systems and software. As such, the two approaches have different benefit profiles over time. The Tech-Enabled approach tends to generate more significant results in a shorter period of time. And the earlier those returns start flowing, the greater the overall contribution for the same period---i.e. more money to invest, more money to use against competitors, and so on. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. MAJOR DIFFERENCE #1: Time to Value and Total Return Year 1 Year 2 Year 3 Technology-Enabled People-Powered Cumulative Contribution The scope of the People-Powered approach is necessarily limited by human capacities and capabilities. Typically, this means that only a small slice of the overall product and customer portfolio actually receives concerted attention. Of course, this is rarely the initial intent. But as people naturally tend to narrow their scope to suit their capacities, it nevertheless plays-out this way over time. The Technology-Enabled approach has no such capacity constraint, or limitation as to how much data can be analyzed and processed. As a result, the entire business can be “in scope”---i.e. every customer, every product, and every order can receive a high degree of attention, analysis, and scrutiny. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. MAJOR DIFFERENCE #2: Scope of Influence and Impact Companies often fail to realize how many downstream “processes” are actually the result of inaccuracies and inadequacies upstream. In the People-Powered approach, it’s common to find a whole host of after-the-fact workflows, exception processes, and approval loops, all designed to allow “more eyes” to scrutinize and further refine the prices being offered. Because the Tech-Enabled approach allows more accurate and relevant prices to be put into the market in the first place, fewer inspection and refinement processes are required. Using a manufacturing analogy, the People-Powered approach inspects quality at the end of the line, while the Tech-Enabled approach starts with higher quality materials. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. MAJOR DIFFERENCE #3: Process Efficiency and Design In a PricingBrew study, pricing people in companies using pricing technology were able to cover 3X more revenue than pricing people in companies with no technology. In other words, companies without pricing technology require 3X more people to cover the same revenue! But greater efficiency is just part of the technology story. As technology handles the heavy lifting, people can focus on more strategic things. In the same study, the top priority for the users of pricing technology was about “growing market share,” while the non-users’ main objective was “correcting pricing outliers.” Clearly, the tech users are able to focus on truly strategic objectives, while non-users are still mired in the remedial grunt work. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. MAJOR DIFFERENCE #4: Human Resource Utilization In the People-Powered approach, pricing authority and discretion is often shifted to a central group of pricing analysts. Of course, this can’t help but create tremendous internal conflict and angst amongst the sales teams. Rather than shifting the decisions to a new group of decision makers, the Technology-Enabled model is about providing current decision- makers with far more accurate and relevant information with which to make more profitable decisions. This approach has less inherent conflict and can actually promote greater alignment and cohesion. The typical “Us vs. Them” dynamic is muted as “the system” ultimately becomes the common ground for collaboration and cooperation. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. MAJOR DIFFERENCE #5: Change Dynamics and Adoption As if these huge differences aren’t motivating enough, there are two additional reasons to take action sooner rather than later: First, most have learned that there’s an “experience curve” with pricing technology and the more you use it, the more proficient and effective you become. Simply put, the longer you wait, the further behind the curve you’re going to be. Second, the current users of pricing technology aren’t standing still. In a PricingBrew study, 58% of pricing technology users are planning to go even further and do even more with the technology in the future. Together, these dynamics suggest that the chasm between the pricing technology “haves” and “have nots” is growing exponentially. SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. Need Two More Reasons to Get On the Right Path? Through our research and analysis, we at PricingBrew have come to the conclusion that taking the People- Powered path...no matter how well intentioned or rationalized...is not only short-sighted, but also risky. Obviously, companies that are just beginning their pricing journey can leverage this information to choose the right path from the outset. But even if you’re already well down the People-Powered path, making a course correction may not be that difficult. After all, the stage-gate or maturity model does have all of the same elements. It’s just that some of the elements have been delayed until some time in the future. So, what if you just decided that the “time in the future” is right now? SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission. Starting Out or Changing Course, the Time Is Now. 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: SOURCES: PricingBrew PricingPulse and SellingBrew SalesPulse Studies © Copyright MindBrew • May not be used or reproduced without permission.  Exclusive training webinars on segmentation, analytics, sales adoption, and more.  Ask the Network for help with your specific pricing problems and issues.  Expert interviews with top consultants and real-world pricing practitioners.  Useful tools and diagnostics to help identify and correct pricing issues more easily.  Dozens of express guides and step-by-step tutorials teach you how to do it.  Pragmatic case studies and research reports show you what’s worked for others. © Copyright MindBrew LLC May not be used or reproduced without permission. Subscribe to the PricingBrew Journal and access an arsenal of proven practices, timely research, and expert insights. 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