What is pricing software? Here’s everything you need to know.
Shifting market demands. Negotiation dynamics. Decreasing profit margins. If you’re like most pricing professionals, you recognize that the days of working out your pricing in a simple spreadsheet are long gone. As the market gets more complicated, so too does the business of pricing. That's why pricing software your solution.
What is Pricing Software?
At its core, it simply helps companies determine the optimal price for their goods and services. It uses advanced methods to process large amounts of historical data to quickly spit out an optimal price recommendation. As well, pricing software factors in market conditions, competitive analysis, promotions, product availability and revenue goals to make the best competitive pricing strategy.
The benefits that accrue from switching to pricing software can range from 1% to 3% of gross margin dollar improvement.
Why Your Business Needs Pricing Software
Pricing software offers a set of functionalities based on machine learning and algorithms. With that in mind, typical benefits of adopting it include:
This includes pricing rules and benchmark, promotional, customer and exception pricing.
Better pricing decisions.
Assists decision makers in anticipating the impact of price changes. For instance, visual pricing summaries provide information about where you are losing income if prices are too high or losing margin if they are too low.
Improved price optimization.
This means you are assured of getting the highest possible price and, at the same time, sustaining profit and revenue development.
A complete audit history.
Records all changes running now and historically – allowing you to question what occurred before and to record the rationale of pricing changes.
It moves you away from a cost-plus approach.
This sets you on the road to price segmentation and value-based selling.
Enhanced competitive pricing strategy.
Allows you to see your competitors’ prices hourly, daily or weekly. This gives you a leg up on your product lines versus your business rivals’.
Strategic pricing opportunities.
With guidance for up-selling and cross-selling, you can identify important pricing prospects and maximize deal sizes.
For more on the benefits of pricing software, check out this recent podcast with our Chief Evangelist, Gabriel Smith.
How to Get the Best out of Pricing Software
Pricing software offers a number of benefits such as automating tedious data mining, helping to align internal departments and, most importantly, achieving a 1-3% gross margin improvement. However, the extent of benefits a company can experience also depends on how carefully they select, adopt and use the solution.
Here are a few best practices that will help you reach the full potential of your pricing solution:
Ensure senior leaders are all aligned on pricing strategy.
Lack of alignment can result in limiting the tool’s usefulness. Also, changing the strategy during or after a rollout can limit the tool’s potential.
Vet your data inputs.
Typically, the more accurate your data, the better your results. So, if your cost information is incorrect or lacks sufficient historical data, recommendations will be impacted.
Set clear standards and guardrails.
Ensuring your whole team is trained on revised pricing processes may seem obvious, but it can make or break the transition. Now, it's also important for leaders to set clear boundaries for when analysts can make their own decision versus when they require approval (like on a price change of more than 10%). This gives analysts the right level of flexibility and accountability.
Choose products carefully.
Not all products are equal. At times, items with low turnover don’t, for example, have enough historical data for pricing software to accurately recommend a price.
Stay focused on your strategy.
Decisions around loyalty programs and discounting must also be made with your pricing strategy in mind. Pricing software such as the solutions offered by Pricefx can ensure these remain aligned. However, there are other pricing elements that are not managed by a pricing software that must also be aligned, such as in-store product placement, signage and advertising.
If you’re still curious if pricing management software is right for you, check out this helpful article written by one of our Pricefx experts.
How Pricing Software Meets My Industry’s Demands
Pricing in any industry is competitive and critical to the survival of your business. But it’s also important to look at the unique demands that are driving your industry.
Building Materials & Construction
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Ecommerce needs to move quickly in response to consumer demand. Leveraging the power of dynamic pricing is one way to speed it up. See how Amazon uses dynamic pricing to hit the sweet spot with buyers.Read Article
With the recent challenges to retail, many are turning to local ecommerce while continuing to provide a unique shopping experience. Learn how one company was able to align its online and offline pricing to ensure a positive customer experience.View Case Study
Will My Business Benefit from Pricing Software?
Is pricing software a good fit for every organization? According to Gartner’s 2020 Market Guide for B2B Price Optimization and Management Software, it is not a solution for everyone. However, they do recommend considering it in one or more of these situations:
- The volume or rate of list price changes is impractical or expensive for people to perform without automation.
- Price management is distributed across multiple regions, but requires some centralized control.
- The organization seeks to leverage advanced statistics and machine learning to fix suboptimal pricing practices identified in historical deals. Additionally, it has a large volume of clean, historical sales transactions with which to train the PO&M models.
- The organization wants to calculate prices and discounting thresholds in real time based on factors such as the type of customer, the mix of products, product costs, product availability, competitors, geography and corporate priorities (for example, targeting revenue or margin).