Research around pricing has consistently shown its importance. Deloitte found on average, a 1 percent price increase translates into an 8.7 percent increase in operating profits (assuming no loss of volume, of course). Yet, also estimated up to 30 percent of the thousands of pricing decisions made by companies each year, fall short of delivering the best price. That’s a lot of money left on the table!
To often, pricing is an after thought, and pricing decisions are made by 'gut feeling,' based on a quick look at competitor websites. Ideally, pricing decisions involve determining the value to the customer relative to the competitor, factoring in pricing power and pricing strategy. For more on this see Pricing Power. What it is. How to get it. from our partners at Ibbaka. Understanding value requires data, and that data can change over time so that the best thought out pricing model can soon be out of date. The solution is data science plus data integration. Data from many different sources can be connected to value and pricing models and when these get out of alignment, due to changes in the market and competitor actions, alerts can be triggered.
When we think about B2B sales analysis, the things that initially come to mind usually involve reporting on CRM data to understand sales by product, region, deal velocity, and the like. Whereas most innovative B2C companies take greater advantage of the mountains of valuable data they have, B2B companies have been a bit slower to adopt this approach. After identifying customer segments, data from not only CRM, but ERP, third party economic data sources and others can be used to understand past purchases & prices, preferences and more to determine the optimal price. As mentioned, even a 1% increase can have a huge impact.
Automation is king
One of the critical keys to getting more out of your data is automating or even better, eliminating, as many mundane processes as possible. This allows organizations to focus on the test & evaluate part of pricing process, not configuring infrastructure and monitoring and maintaining data flows. It also allows the people doing analysis to take advantage of larger and more diverse data sets and make adjustments without a huge headache.
Sell pricing internally
As someone who has spent years in sales, I can tell you that pricing is so much more than just a number. It’s lead to heated discussions around many tables in innumerable offices. It’s one of the big “hows” sales reps have to keep in mind when trying to close deals. Providing B2B sales organizations, with information and context to help reps understand the factors behind pricing is mission critical. Keeping them educated on this topic will build confidence and translate to clients that have a better understanding of how the cost of the product translate to business value. Introduce optimal pricing earlier in sales cycles can also lead to increasing the speed to close deals as well as increasing win rate.
Test and evaluate
It’s important to remember that pricing is not a static, set it one time type of event. It’s important to try, test and learn. This process is so much better when we can use data to influence and validate the decisions made.
Pricing is an important part of the foundation for strong sales and marketing organizations and using data effectively as part of your strategy can reveal key insights to make sure you get it right.