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The Definitive Guide for Better Pricing
Contents
Introduction 3
IdentifyingNewCustomers:WhereShouldYouStart? 4
HowCanCustomerSegmentationImproveYour
PricingStrategy? 6
ForgetNewSalesRepsOrMoreTraining:PricingSolutions
ImproveRevenueWithoutIncreasingSalesCosts 8
ImproveYourVisibilityIntoSalesAndDiscounting
WithTheseMetrics 10
Conclusion 13
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The Definitive Guide for Better Pricing
Introduction
Growing sales and margins through better pricing doesn’t have to be an impossible
task. By focusing on four key areas, businesses can build a solid pricing foundation
that will help you create consistent sales and profit growth. This eBook will guide
you through these areas, offering smart strategies and actionable tips to help you
get started.
Businesses need to start by defining how to identify new customers, so that your
sales reps are getting the most value from their time. Follow that up by segmenting
your accounts, so that you’re spending your time on the ones that offer you the
best profitability, not just the biggest accounts that can be deceptively unprofitable.
Maintain that customer base with technology to help you analyze today’s data-
driven sales instead of looking to additional sales reps or more training to meet
your numbers. Finally, improve your visibility into sales and discounting so that you
can track your progress and identify the areas where you still need improvement.
Better pricing doesn’t happen overnight, but with a consistent approach, you will
see results.
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The Definitive Guide for Better Pricing
Identifying New Customers:
Where Should You Start?
Every company needs to quickly identify the best potential customers and
make sure it’s getting the best return on its sales reps’ time. The key is to first
understand your existing customers and why they’ve purchased from you. In
creating your strategy, here’s a model to consider: the self-driving car being
developed by Google.
Google’s driverless car needs to make turn-by-turn decisions as it navigates
its environment. To accomplish that, it collects mind-blowing amounts of
information about both its internal systems and its external environment, and
connects and processes this information in real time. Similarly, commercial
business-to-business companies need robust technology and processing
power to integrate their internal information with external market data in
a way that improves decision-making and leads the company in the right
direction.
Forward-looking companies are investing heavily in technology and solutions
that connect sales transactions to customer data, product information and
price quotes, as well as metrics for the competitive environment and market
conditions.
The first step is to understand your existing customers on
a deep level. This process requires both qualitative and
quantitative research. Many companies tend to focus
on qualitative measures, such as user research
surveys and buyer persona questions, but relatively
few focus on the quantitative side. And that’s often
a mistake.
This quantitative research, which begins with
analyzing the data that your company already
has about existing clients, can help you truly
understand your customers’ key attributes and
behaviors.
Here are some questions to explore.
Summary
In developing your
strategy for identifying
new customers,
consider modeling
your approach on the
self-driving car being
developed by Google.
Like that driverless car,
your business needs
robust technology and
processing to integrate
internal information with
external data, using these
analytics to improve
decisions and guide you
toward your goal.
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The Definitive Guide for Better Pricing
1) Who is the customer? Don’t stop with the size of the overall company
and the industry it serves. Pinpoint the department that purchases from
you; the types of products it purchases; the conditions in which it sells
the product; and whether it’s positioned as good, better or best in the
market.
2) What did these customers buy?
3) How much did they pay for it?
4) What additional factors came into play? Did the customer require that
you ship overnight by air or five-day by ground, and how did that affect
pricing?
By gathering and analyzing information, you can begin to identify the most
common attributes within your existing customer base. These attributes
are critical to developing a profile for your target market. Connecting these
attributes with a company data list enables you to see which companies
overlap the most with your current customers, and you can quantitatively
score these prospects.
When talking about using data science in pricing, it’s helpful to think of
segmentation, forecasting and optimization in terms of three different types
of analytics.
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The Definitive Guide for Better Pricing
1) Descriptive: A form of descriptive analytics, segmentation is a way to
describe what happened. Previous sales transactions data is the core of
this analysis.
2) Predictive: Falling under predictive analytics, forecasting is a method
for describing what you expect to happen. Here, sales transaction data
might be analyzed alongside larger external information sources to draw
some conclusions about the business, such as expected product growth.
3) Prescriptive: Offering prescriptive analytics, optimization outlines what
decisions to make based on what’s expected to happen. By pulling all this
data together, you can recommend which products and prices to offer.
Today, companies need technology and strategic solutions that connect
internal data (sales transactions, customer data, product information and
quotes) to the outside world, incorporating data on your competitors and
the changing market. These tools can help your company, like the Google
self-driving car, to automate and streamline complex decisions in a way that
guides you toward your goals.
How Can Customer Segmentation Improve
Your Pricing Strategy?
Every company has preferred customers who receive the highest level of care
and attention. These top customers will always get your newest products, your
best pricing and other star treatment. In most organizations, sales operations
and pricing are focused on the biggest accounts, because each one has such
a large effect on sales numbers and profit. But how can you be sure that your
largest accounts are also your greatest potential for revenue growth?
Typically, when you’re trying to determine which types of accounts and market
segments to pursue, you want to focus on the big picture, or “the long tail.”
When deciding how to segment and prioritize customers for your pricing
strategy, you have to analyze the ROI for many different factors. On the most
basic level, do you want to spend a lot of time for a lot of benefit on a very
large account? Or do you want to spend a little time for a little benefit across
thousands of small accounts when the cumulative impact could be huge?
Summary
We all realize that the
biggest accounts get the
most attention because
each one has such a
large effect on sales. But
until you analyze the
data, how can you be
sure that your largest
accounts are also your
greatest potential for
revenue growth?
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The Definitive Guide for Better Pricing
The problem for many sales teams is that they’re so used to focusing on the
largest accounts that they’ve neglected to get a firm grasp on the smaller
transactions that make up perhaps 80 percent of sales.
The number of variables that go into pricing small and medium accounts is
too complex for most organizations to manage effectively. For example, a
given group of customers will care about the pricing details for a handful of
products. For a medical distributor, cardiologists will always want to know
they’re getting the best price on EKG machines; general practitioners will
always want to know they’re getting the best price on latex gloves. With those
combinations of customer and product, you’re not going to be able to move
the needle of pricing significantly.
With other combinations of customers and products, however, people tend
to just accept the price, so long as it appears reasonable. Instead of asking
themselves, “Is this the best price for this product?” they ask, “Is the price close
enough to what I’d expect so that I’m not going to question it?” Most of your
products or customers probably fall into this category, which creates a huge
opportunity to shift prices. The key is to be able to identify these less-sensitive
areas and optimize the pricing. Most companies don’t focus on that at all due
to lack of bandwidth.
The complexity of pricing optimization requires a dedicated software
solution — a tool that can analyze all the smaller transactions and produce
recommendations that drive revenue.
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The Definitive Guide for Better Pricing
It’s common for a company’s sales operations and pricing to focus on the
biggest accounts because each one has such a large impact on revenue.
Most of the time, when companies hire pricing or sales operations people,
it’s because they are facing an acute need on one of their very large, sensitive
accounts.
You might be able to squeeze another $500,000 in sales from your largest
customer, but you may prefer to achieve the same result by changing your
prices by just a few pennies. At the end of the day, the impact on your
business could be the same. But with a pricing software solution, optimizing
sales to the more numerous, smaller accounts can be equally profitable and
result in long-term growth.
Forget New Sales Reps Or More Training:
Pricing Solutions Improve Revenue Without
Increasing Sales Costs
It’s a new year, and your company’s sales goal for 2014 is higher than last
year’s. For the sales department, the increase means it needs to decide on a
way to reach that number. But it’s not so simple. The question for the CEO and
the company as a whole is more complicated: How do we increase revenue —
without increasing the cost of sales?
When sales leaders are asked to increase revenue, they typically suggest one
of these three ideas.
1) Increase headcount: “You increased my sales number by 10 percent; to
meet it, I’ll need to hire 10 percent more reps than I had last year,” a sales
manager often says. Usually, the CEO will be looking for ways to increase
sales with current staff.
2) Increase training: To make existing staff more productive, the solution
might be to add more training in negotiation, products and selling
strategy. But if the company recently invested in additional sales training,
the CEO may ask, “Why do we need to do that again?”
3) Increase marketing: If you already have the staff and the training, the
problem could be the marketing content. “We have messages that don’t
resonate; they’re not reaching the right audiences,” the sales leader
Summary
Sales teams everywhere
are asking themselves,
“How do we increase
revenue — without
increasing the cost of
sales?” A pricing solution
can control sales costs
by making everyone in
the organization more
effective, driving revenue
while changing business
strategy on a deep level.
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The Definitive Guide for Better Pricing
might say. “We keep hearing about content marketing, but are we doing
anything with that?” Again, the drawback is that new marketing takes a lot
of time, effort and resources.
Increasing headcount, training or marketing may boost sales revenue, but
they do so by increasing the cost of sales. So how do you grow sales if you
don’t have any more money to spend, or if you’ve already tried these three
approaches?
To increase revenue without increasing your sales costs, companies should
focus on sales effectiveness, not sales volume. Effective selling begins with
examining each sale for ways to improve. Could you have negotiated a better
price? Did you sell everything the customer was probably going to buy from
you? Did you sell the standard brand product when you could have sold the
premium product?
Effective selling means supplying reps in the field with the customer
intelligence they need to negotiate the best deals. This intelligence can be
found within the existing sales data; the trick is having it handy in the moment
of truth, when the rep is talking with a customer who needs your product.
Sales leaders always want to know how to take the knowledge and expertise
of their best sales reps and replicate it across the rest of the organization.
While your best sales reps may have 20 years of experience, they can’t analyze
a year’s worth of transactions and provide recommendations on the fly. But
imagine if they could.
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The Definitive Guide for Better Pricing
The only way to provide this intelligence in the field is through pricing
technology. You can think of pricing solutions software as a recommendation
engine, something like a GPS device. It knows where you are; you tell it
where you want to go and it helps provide guidance toward that goal.
Pricing software leverages your internal data by connecting it to external
data about your customers and the market, analyzing the results to provide
recommendations at the time of negotiation. Without it, it’s like trying to find
your way by going to a convenience store and picking up a map.
Pricing technology helps sales leaders to track and analyze sales, and to
identify corrective actions. It allows you to glean insights from the wealth
of experience you’ve already had selling your products, and then provide
recommendations based on best practices — the sales that have resulted in
higher profits, a better product mix and larger deals. It helps each and every
sales rep get into the head of the most experienced sales reps.
In the end, if you want to increase your company’s revenue without driving up
your sales costs, you need to invest wisely. And a pricing initiative generally
offers a better solution than increasing your marketing, training or headcount.
You can start a pricing initiative for roughly the same cost as hiring two new
sales reps, and still get more than enough ROI to fund the rest of the project.
Investing in a pricing solution also makes everyone in the organization more
effective; you’re making changes on a strategy and philosophy level. Just hiring
two new reps or training a few employees can’t accomplish that.
Improve Your Visibility Into Sales And
Discounting With These Metrics
When two of your customers are essentially comparable — the same industry,
same size and same spending levels — your company should ideally earn the
same margin from these deals, right? If you’re seeing a margin difference of
10 percent between these two similar customers, it doesn’t take Einstein to
realize something else is going on with your pricing and discounting.
There may or may not be a good reason for this pricing difference, but
a lot of companies don’t even start asking these hard questions. Three
common obstacles prevent them from analyzing their sales and discounting
information in a systematic way, resulting in lost revenue: fear of the
unknown, faulty assumptions and misunderstanding of pricing technology.
Summary
Many companies don’t
even begin to ask the
hard questions about
pricing discrepancies.
Three obstacles prevent
them from systematically
analyzing their sales data:
fear of the unknown,
faulty assumptions and
misunderstanding of
pricing technology. Focus
on four key metrics to get
the visibility you need to
track your growth and
profitability.
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The Definitive Guide for Better Pricing
Most companies can achieve reasonable visibility, but only with their
biggest clients and biggest deals. Anyone can analyze their major accounts
using a spreadsheet or offline analysis. But too often, companies lack this
same visibility into the sales for thousands of smaller customers that are
buying tens of thousands of products. Unless you can analyze all of these
transactions and provide recommendations for your sales reps, your company
will miss out on many smaller opportunities for getting a better deal, whether
that consists of a better mix, more products or better pricing.
To increase revenues across all sales requires
visibility across possibly tens of thousands
of transactions. To do that, you need to
approach the problem systematically,
using pricing optimization technology.
Unfortunately, this is where many
companies run into three common
obstacles.
1) Fear of the unknown: Once you
start digging into sales data for the
first time, who knows what you’ll find?
If your sales department has tended
to operate with a free hand when it
comes to pricing and discounting, it
may resist the additional oversight
and scrutiny introduced by a pricing
initiative.
2) Faulty assumptions about sales: In many sales departments, there’s
an unspoken belief that every deal is unique in some way, which leads
to the assumption that the people involved must have negotiated the
best price from that customer at that time. Few people want to admit
to shortcomings, and that’s understandable. But attributing a certain
mystique to closing the deal only makes it harder to pinpoint these
opportunities for improvement.
3) Misunderstanding of pricing technology: For sales leaders, the idea of
using pricing analytics may sound overwhelming. The good news is that
you don’t have to be a data scientist to analyze sales data. But you do
need to go into a pricing initiative with a clear sense of what problems
you want it to solve. “I need to understand why I’m getting so many
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The Definitive Guide for Better Pricing
customer complaints,” might be one example; another could be, “I need
to be able to understand why sales are dipping.” Pulling the data together
isn’t necessarily the obstacle — it’s making sure you understand the
pertinent questions before you start a pricing initiative.
And that’s where purpose-built software has an advantage over a generic
analytics platform. It’s optimized to provide what salespeople need from a
recommendation engine. Well-designed pricing software focuses on one thing:
How can technology and data science help me grow sales? Since the software
has been designed to solve that problem over and over again, it can ensure
the most relevant questions are answered.
With pricing software in place, companies can apply common sales metrics to
gain visibility into all of their sales, instead of focusing on the big customers
and hoping the rest will just work out. Some metrics to look at include the
following.
1) Win rate: How many quotes do you provide to prospects, compared to
how many transactions ultimately result from them?
2) Deal size: Knowing the average deal size can help you identify the
exceptions and determine best practices for getting larger deals.
3) Revenue versus discounts: How does the discount or price
you give affect how much revenue you’re getting from each
customer?
4) Customer lifetime value: Do customers buy something
but choose not to grow their business with you, or do
you see a positive trend where you’re able to continue
growing the relationship and ongoing revenue?
Fear of the unknown, faulty assumptions and
misunderstanding of pricing technology are three
barriers that are fairly universal. Organizations have
to first get over them to start the process of gaining
visibility into the sales process and boosting revenue.
With purpose-built software, salespeople can have
confidence in the recommendations, and use them
to make the most of every customer relationship —
not just the biggest ones.
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The Definitive Guide for Better Pricing
Conclusion
Creating a pricing strategy that helps support your growth and profitability comes
down to four key areas. By using the strategy and tips offered in this eBook, you
can start optimizing your pricing. By focusing on identifying new customers and
segmenting them into groups where your time is more valuable, you won’t need to
add new sales reps or invest in expensive training to continue growing.
Keep your sales team focused on that growth by improving your visibility into your
pricing and discounting. Technology solutions ensure that you can get the most out
of your data and that you always know where your numbers are and what areas
need more attention.
By using the tips and strategy in this eBook, you’re well on your way to optimized
pricing and improved profitability.
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The Definitive Guide for Better Pricing
Growing sales and margins through better pricing doesn’t have to be an impossible task. By focusing on four key areas, businesses can build a solid pricing foundation that will help you create consistent sales and profit growth.
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