Smart Pricing Tools Software: Are IT Tools a Silver Bullet for B2B Price Movement?
A dynamic and smart pricing tool software: Pricing IT tools might not be the silver bullet for B2B businesses when it comes to price movement.
I have had significant experience using varied pricing tools software for products with varying strengths and weaknesses for various pricing approaches. Being simplistic – they often create just as many problems as they solve.
Whilst a Commercial or Strategic Pricing Manager’s role sits between finance, sales, marketing and strategy, most pricing software products utilised inside companies have been administered and viewed as some form of accounting package. They have been argued for and installed often by people with a cost-plus mentality and tend to reinforce the same (with all the negatives and positives that the mindset brings to a corporation).
Table of contents:
Price Movement & Smart Pricing Tools: Are IT tools a silver bullet for B2B pricing?
How should you evaluate the efficacy of dynamic pricing tools software?
We like to believe that a problem has been resolved because we have a seemingly efficient and Avant-garde technological product in place to solve it. When considering the efficacy of these products, it is vital to differentiate three broad concepts of Pricing and Commercial Management:
1. Pricing controls and policing
In general, pricing controls and policing is the easier area to address. For instance, a smart pricing tool allows you to automatically adjust your price points, whether that’s a decrease or increase. This is supposed to match the fluctuations of demand in the market and stop your sales team from selling at a loss or issuing prices without any structure or control.
Some organisations think that racing to the bottom of who offers the lowest prices will help them stay above the market trends. When in fact, it only erodes margins, causing profit loss. Slashing your prices isn’t always the best competitive advantage. In fact, discerning customers will question this and the value of your products and services.
A well-maintained pricing software programme can help with ‘pricing controls and policing.’ But it does not help with either implementing a price rise to customers or educating your teams on value, pricing, and selling.
If a business does not have the right level of commercial knowledge about pricing competency insight into why customer value your business and the ability to implement a price rise, then the numbers entered into even the most sophisticated pricing tools software is nonsense.
Eventually, the business will find that EBIT is suffering, as customers demand credits and unreasonable discounts and or switch to competitors. Sales and commercial teams become unmotivated because of the daily backlash from customers. As expected, adversarial negotiations with procurement will be the norm, not the exception.
2. Strategic pricing & selling
The second area which is strategic pricing is more intangible (in theory if not in revenue delivered). The strength of the first issue (policing) can actually have a detrimental impact on the second. We lose sight of the end goal, like strategic pricing by focusing purely on policing and controls. This is the classic instance of “not seeing the forest for the tree”.
3. People, pricing capability, and skills
The third one is the harder area to address because new ideas, visions and breaking old habits takes a while to manifest into new, positive and productive behaviours. Especially if there is no change for pre-existing value-based pricing culture in the business.
A well-resourced pricing function and intelligence tool deliver on three areas, pricing models policing, pricing strategy, and capability. Picking a software solution is only a partial solution at best.
A Melbourne-based protection gear company, for instance, have been in the market for more than a decade. After 6 months of adopting a smart and dynamic pricing tool, it boosted its ability to respond to customer demand. It helped track its competitors more efficiently and apply price adjustments using informed decisions.
Evaluating your competitors and strategic promotions help you decide on the necessary price adjustments following a step-by-step process that are easier to implement. This also protects your margins aside from receiving accurate price calculations and suggestions as you optimise your pricing system.
AirnBnB’s smart pricing tool
AirBnB uses data analytics from its library of 10million to employ pricing strategies that position registered property at rates to boost revenue. The smart pricing tool analyses real-time market demands and price recommendations, including seasonal travel and peak offers.
Customisation allows AirBnB properties to use personal tweaks and set preferences for minimum and maximum pricing. This includes promotional offers and discounts that maximises daily rates and capacity for occupancy. Smart pricing tools also allows businesses to monitor their competition and take advantage of evolving market trends and buyer behaviour.
If used properly, dynamic and smart pricing tools software have a significant potential to maximize profits. This enables you to reach your sales forecast in a highly competitive environment.
Bear in mind though that pricing tools software cannot solve all pricing problems. It is not a substitute for a good pricing strategy or team either. To proactively steer pricing, consider having the right organization, support processes, and methods in place.
Smart Pricing Software Tools: Is technology creating gaps in price movement and team capability?
Pricing software tools: As margin forces continue to impact the value chain at full force and a whole host of new and complex commercial challenges emerge across B2B and B2C business environments, pricing approaches are changing rapidly and significantly. You need every member of your pricing team to be effective, functional, agile and adaptable in order to acclimatise and upskill to a new commercial reality that has slowly dawned upon us.
At the same time, recruitment and sourcing, team management and leadership, engagement and motivation, talent management and retention are all getting tougher and more difficult to predict. In-house recruitment teams are not controlling costs as expected. Also, leaders of businesses with established pricing teams look for help to adapt to the changing market conditions. That includes optimising their pricing function for better results.
Why is this happening?
As the take up of new IT pricing software tools exponentially escalates, organisations across many industries in Australia are in danger of putting all their eggs in one or two well-known branded pricing software tools without fully appreciating the need for high calibre people to run and make money out of these very expensive pricing systems.
Don’t fall into the same trap.
The science behind well-established pricing software tools is sound. However, despite the highly impressive algorithms, and multiple lines of linear regressions and weighted competitor scores, all IT systems (even the well-known branded ones that start with P and V) run off whatever structures and data you feed into them.
In other words, if you put junk into a pricing system, no matter how much you pay for it, you will receive the same junk. And, even though it seems like a logical format, it will not give you a better and more accurate read on your customer base or competitors. Further, it will not deliver you the EBIT outcomes and cost reductions you are looking for.
The problem with smart IT pricing software tools
IT pricing systems do not tell you how to structure your price and value architecture. They do not provide you with a strategy or real pricing capability. They do not clean your data or provide data governance guidelines. Neither do they tell you which opportunity is good or risk.
All of these critical pricing actions and decisions are heavily dependent on human pricing expertise, implementation to market, high functioning teams and intra/inter-team communication protocols and feedback loops.
In essence, whether your pricing is profitable or not depends heavily on your pricing strategy and price architecture. IT pricing software tools do not generate the right strategy and price architecture for the business. They do not tell you about customer purchase behaviour and value drivers unless you have pre-programmed it to do that. They don’t possess price structures that show logical relativities, differentials, and bandwidths.
This is still reliant on a human’s domain expertise, price analysis, human intervention – and more importantly, regular market and customer testing.
What are smart IT pricing software tools very good at doing?
IT pricing system automates pre-programmed pricing methods or business ‘rules’ very well. So once you have a good structure in place (and it’s been thoroughly tested in the market), it makes sense to utilise a sophisticated pricing system to automate these tested rules and methods. You can also enter as many rules as you like to the system, as long, of course, as you know how to configure the system correctly (which again requires a lot of expertise and training).
Caution: Never automate untested rules. (Sounds obvious, but many companies do this because they do not have a pricing leader and or pricing team with the skills to test, validate and or flag underperforming pricing methods in the market. A team and or pricing professional with the ability to convert the total value of the business’ assets into EBIT is still a rare find.)
Price Movement and what can you do about it
It’s becoming increasingly important for businesses to design and invest in pricing talent that drives pricing transformation. Shortages in people with critical pricing strategy, structures and people skills will see relatively few pricing executives commanding rising salaries.
It is also very likely that wage inflation will increase in certain pricing skills areas like systems operations and analytics, data and price structure development. But, as more global talent comes into Australia, more businesses will review compensation packages. It may be too late as many Australian companies are locked into traditional salaries, and compensation structures well above market rates for skills and competencies that can be automated or outsourced.
In short, organisations need to take a different approach to match current pricing capability with a strategic business plan. You need to develop new pricing competency models. Then, take the brave step, and actually assess the current team’s capability against future capability requirements.
Delaying pressing workforce issues in pricing will facilitate a capability crisis across many industries. (Not too dissimilar to what happened in mining i.e., when organisations found themselves paying the price for layers upon layers of unnecessary management structures, and out-of-date skills that quickly became redundant with the collapse of the mining boom).
What the future looks like – Price Movement and Smart Pricing Tool
The next 10 years, will not be about the number of pricing hires. Rather, it will be about quality – leading directly to pricing capability. You need to find the right people to implement pricing transformation and achieve organisational outcomes. You, then need to determine whether these are the right people to drive the chosen business strategy. Also, whether you need to re-look and revise your talent management strategy again.
We advise businesses to take a lean and agile approach to workforce planning and resourcing. Test and trial different team structures and talent strategies. Evaluate pricing capability using sophisticated and domain-specific people analytics and price frameworks. Implement innovative recruitment strategies to attract the right people for the job. And, then continually monitor and align your pricing function to strategy.
Change is not easy and neither is aligning people to a new pricing system. Let’s stop downplaying fundamentally critical areas in pricing transformation and make a decision to address key objectives today.
For a comprehensive view on maximising growth in your company,
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
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