Many businesses do not put a lot of effort into their pricing strategies and the associated technology that drives the pricing game plan. They base their pricing on gut-feeling or use a simplified cost-plus pricing strategy and add a percentage margin to costs, and that’s it. While this pricing strategy can work out just fine and result in a perfectly good profit margin and revenue for a company, it does not consider other factors like determining how well a certain price will perform, identifying new areas for profit growth or valuing your products for their technological superiority in the eyes of your customers. Are you continually being able to leverage your pricing as you expected with your current pricing set-up and unearthing new profit opportunities you never knew you had? Let’s take a journey examining 6 ways pricing software can help in driving profitable growth.
Over the last decade at Pricefx, we have been working together with large-scale enterprise businesses just like yours to assist them in realizing their unique pricing niches and hidden pathways to extra profit with the use of innovative pricing software technology.
Let’s get started and list 6 of the major ways that pricing software can assist in driving profitable growth for your business, before we take a deeper dive into each of the 6 pricing software profit drivers and how you can consider applying them in your organization.
Driving Profitable Growth: Get the Most Out of Pricing Software
So, if you have made it this far, clearly you or your business are interested in deciding to implement a pricing software solution like Pricefx. Fantastic! You are well on your way to finding ways to increase your prices and lift your operating margins.
Did you know even something as small as a 1% increase in your prices can improve your operating margin by as much as 11% – check out the video below for more detail.
It’s not magic. Because pricing software solutions help maintain pricing accuracy, make the pricing process more efficient in addition to helping you identify better price points for your goods and services that drive profitable growth. Whether you reach the overall 11% margin improvement, will not simply be the result of implementing pricing software and sitting back to watch the cash roll in! No, to reach your full potential, it is important to identify that your pricing journey is a non-stop one rather than a set-and-forget.
In that light, here’s a list of 6 ways that pricing software can assist in helping your organization drive profitable growth;
Get a detailed view of your customers
Rely on your data to get granular with your pricing decisions
Focus on your organization’s profitability over the number of sales
Data-informed pricing optimizes your inventory
Automated price list management saves your business time + plugs your margin leaks
Automatically track adjustments of rebates, commissions, and offsets
1. Get a Detailed View of Your Customers
One of the first steps to driving profitable growth using pricing software is identifying the opportunityto get to know your customer base. Once you have a clear idea of what unique selling propositions attract customers to your product and how much they are willing to pay for it, you can start creating a profitable pricing strategy that monetizes your value proposition.
Remember that not all your customer’s needs are the same, and your pricing strategy should reflect that. In other words, customer segmentation is your friend.
Using the data on historic purchases and consumer behavior can help you identify unique product groups, which you can target with more personalized pricing to drive profit.
Tracking the way your customers respond to changes in pricing is also a great bi-product of data-informed pricing. This knowledge can help you tweak your pricing approach and make for fruitful revenue management.
One of the best ways to understand how this approach works is to realize that just as there can be different customer segments so can there be multiple versions of your product, each one offering a different measure of value, one for each segment you want to address.
When it comes to pricing one should never compete on price but on value.
2. Rely On Your Data to Get Granular with Your Pricing Decisions
You will make better, more accurate, more confident, and more informed price list update decisions if they are backed up by the data you are feeding into your pricing software. Understanding your customers through data to support your pricing intuition instead of relying on second guessing yourself is critical. This means using the technology analyzing your own historical data on how your prices have changed, why they’ve changed, and how your customers have reacted to develop a full and transparent pricing history.
Data availability seems to always be an issue for most organizations, but the reality is that we are inundated with data. The real problem is thinking you need to start making decisions only after all data is available or the data is “perfect”.The concept of analysis paralysis is a real one and it costs many organizations precious time to go and capture business.
3. Focus On Your Organization’s Profitability Over the Number of Sales
Discounting by your salespeople to win the deal/s can be an incredible profit killer, this is because it is easy for an organization to lose track of how much is being left behind due to discounts, approving a 2.3% discount for a single quote might not look like much but over a periodof timethese small economic considerations do add up to big numbers.
A business pricing strategy that is relying heavily on offering frequently discounted deals robs your organization of the opportunity to make valued-based premium sales, and therefore poisons profit growth increases.
Instead of getting trigger-happy with special offers, consider introducing a sales compensation system that supports the value of your team’s sales rather than their volume and support it with reliable pricing technology.
On the flip side, if your customers are discount-reliant, consider what you can get in return for offering your customers lower rates? Case studies and testimonials, for instance, are great for building brand awareness. However, you could also go down the route of creative financial benefits, such as long-term contracts or larger upfront payment sums.
4. Data-Informed Pricing Optimizes Your Inventory
Many companies use spreadsheet-based forecasting models to try and predict future demand and manage their inventory. However, these forecasting models tend to be elementary and do not consider all the variables and factors involved. The main issue comes down to being able to differentiate between anticipated demand and actual demand. Predicting actual demand involves gathering enough data in order to make informed decisions about stock purchasing and replenishment, and the end results can help you save a bundle. Instead of going through the tiresome task of manually updating your prices whenever you anticipate time-sensitive demands, you can create separate price lists and assign date ranges to each.
Stock can be categorized based on real-time purchases, customer orders, customer reviews and turnover by analyzing the data. Consequently, companies will have an accurate reflection of their best-selling products at any point in time and price them accordingly based on the perceived value of their customers to drive profit.
5. Automated Price List Management Saves Your Business Time + Plugs Your Margin Leaks
Juggling multiple pricelists for hundreds of thousands product price updates can be both frustrating and time-consuming. Instead of fumbling your way through spreadsheets in desperate and potentially error-ridden attempts to find what you’re looking for and/or pass on your price increases in a timely fashion, you can use a price management solution to help you organize and filter your price list, quickly and effortlessly.
Standard pricing processes and performance reviews of your products are often too slow to manage the kind of current rapid change that has not been experienced for many years.
Your pricing team must be able to monitor what approved price levels are and notify your customers of price changes on time to avoid margin leakage.
Imagine in the current environment of rapid raw material commodity fluctuations being able to reduce your price list update time from months to minutes! What used to take your 2 months, you can now get done in 20 minutes. All while minimizing your margin leakage and increasing your bottom-line profit.
With those kind of time savings, your pricing team can be repurposed to go and discover additional pockets of value. Instead of preparing price lists for 2 months, your pricing team can get strategic and potentially be empowered to discover alternative pathways to profit that previously seemed beyond reach or even unimaginable.
6. Automatically Track Adjustments of Rebates, Commissions, and Offsets
Pricing Software allows you to automatically track adjustments to your rebates, commissions, discounts, and other offers. In tough economic conditions when cost-cutting measures may be required, you can use your pricing software to conduct a critical audit of your rebates and other promotions and dispense with those that you may deem as unnecessary.
Reducing on-invoice discounts like promotional, volume, standard, and discretionary discounts, or off-invoice deals like buying group rebates and payment term costs can be a wonderful place to start to locate pockets of profit.
However, you may not need to totally dispense with discounting. Try transforming it. One proactive discount change to try is switching discounts into rebate programs wherever possible to swap any risk onto customer performance targets for your customers instead of placing unwanted pressure on your profit margins.
When the economic conditions turn more favorable, you can consider reintroducing discounting as rewards for customer loyalty and the danger of them eating into your margins has passed.
Getting Started with the Pricing Software Profit Drive
Now you know 6 ways that pricing software can help your organization drive profit, you’re probably looking to differentiate the multitude of pricing solutions choices out there. Check out this article to help you decide;
On the other hand, you know what you want, and it is time to act, but can your business afford it?
By going through the proper planning and identifying the issues around your organization’s profit growth pains, the real question might be; can your organization afford not to?
At PriceFx, we know how powerful pricing software is in setting up a functioning one-stop pricing shop to grow profit. Drill down into this article on the nitty-gritty of pricing software costs for your company to help you decide;
Jose Paez is a Solution Strategist at Pricefx with 14 years of experience as a pricing practitioner. In his career, he has led in every aspect of pricing from analysis and optimization to pricing strategy definition and execution. His experience in driving and implementing initiatives in digital transformation has given him insight into the typical roadblocks organizations face and the best paths to release the untapped potential of pricing organizations.