In the 1950s through the '70s, Formula 1 pitstops were far less sophisticated than they are today. Pit crews had to apply plenty of manual effort to refueling cars, changing tires, and addressing mechanical issues. As a result, it often required more than a minute to get their driver back on the course, which is an eternity given that races are often decided by mere tenths of a second.
Today it’s a completely different story: Some pitstops flash by in less than two seconds! That quantum leap in performance has been made possible by a combination of human skill and technological advances.
Something very similar has happened in the world of pricing diagnostics. Using tools to set and adjust prices was once a complex and time-consuming process, requiring lots of manual work to create and clean data sets, and with only a limited number of tools available to execute advanced analytics.
Now, thanks to advances in both human expertise and diagnostic capabilities, it is faster and easier than ever to identify improvement opportunities that are executable in the field and provide an in-year impact to the bottom line. That speed-to-value is more critical than ever given today’s rapidly changing business environment.
Revving up your pricing engine
We are in a new era of pricing, powered by:
- More talent, thanks to growth in the number of organizations that have invested in pricing as a discipline
- More data, thanks to an expanding universe of benchmark databases and other types of pricing information
- More power, as advanced analytics and other technological improvements make it possible to ingest, interpret, and act on huge volumes of data very quickly
These developments have enabled the creation of rapid and flexible benchmarking tools such as our Pricing Capability X-Ray, which delivers visually impactful benchmarks that show where companies stand on pricing best practices against their “true peers” across industries. Additionally, the vast universe of pricing data and analytical capabilities have made it possible to create platforms such as our B2B Pricing KPI Database, a first-of-its-kind capability built on data from Pricefx and our deep industry experience. This potent platform can help you make faster, better decisions on improvement opportunities based on your company’s relative performance across nearly three dozen standard pricing KPIs.
These advancements across talent, data, and technology do for pricing what Formula 1 pit crews now do for drivers: apply fast, focused expertise to propel performance. We see three opportunities where this can make an immediate impact for most organizations.
Opportunity 1: Reset prices to reflect market value
Product and pricing teams at many companies are often siloed and seldom coordinate closely to set prices for their product portfolio. The result is money left on the table and confusion among your customers when good/better/best product value propositions don’t map to good/better/best pricing.
We have a robust set of price-setting analytics that will accelerate a company’s understanding of product value. This includes knowing which competitive and customer market research methods work best for pricing across different industries, channels, and go-to-market motions, and which transactional price analytics are most important in understanding a customer’s willingness to pay. These capabilities combine to provide insights and confidence (see Figure 1) about where to reset prices.
Product margins don’t reflect market positioning or follow a coherent price architecture
In working with a client in the building products industry, we found that they had multiple instances where higher-value product offerings were priced similarly with standard offerings. Through market research and data analysis, we were able to prove to them that they could raise prices for their higher-value products, enabling them to boost margins and highlight the value of their differentiated product offerings. This pricing opportunity, along with others, yielded 500 bps of margin improvement for the company, and is just one example of price-setting analytics from our diagnostic toolkit.
Opportunity 2: Reduce unjustified discounts
High, unjustified variability in discounting is often a huge source of margin leakage for B2B companies. This leakage can take many forms, including small, unqualified accounts receiving large discounts, customers receiving discounts that go beyond pricing policies, and variability in the discounts offered to similar customers for similar deals.
Our core diagnostic capabilities include a set of targeted analytics that can estimate the degree of unjustified discount variability and size the prize for correcting it (see Figure 2). In addition, our battle-tested Dynamic Deal Guidance solution can help companies implement effective price guidance to improve frontline discount discipline and achieve significant benefits that flow straight to the bottom line.
Like-for-like customers buying equivalent products receive highly variable discounts
As an example, we ran targeted price-getting analytics that identified a high degree of unjustified deal discounting for a distributor. We then built an intelligent deal guidance tool to rein in these unjustified discounts, driving a 36–48% profit uptick in the company’s upcoming contract renewal cycle.
Opportunity 3: Update contract terms to reduce margin leakage
Even when companies set and get the right prices, they can still leak profits due to poor or silent contract terms (see Figure 3). This form of profit leakage is often difficult to identify because it requires getting data from many disparate sources that are difficult to combine and analyze, such as contractual terms that sit in Word or PDF documents, not to mention rebate, freight, accounts payable, and other cost-to-serve elements that must be cleansed and stitched together to glean insights.
We have a codified playbook and approach for gathering and extracting data, using AI and optical recognition technologies to extract relevant terms from messy data sets, advanced analytical tools to bring together complex data sets, and powerful visualization tools to generate actionable insights.
Combined, these tools shine a light on where profits are leaking and often reveal opportunities to increase margins by enforcing or reevaluating contract terms.
Enforcing/reevaluating contract terms and conditions can increase margins
We helped a healthcare logistics company address the profit leakage resulting from a lack of contract and service standardization across its customer base. We executed a rapid diagnostic that identified 500–700 bps of opportunity across priority accounts in two of the company’s largest markets and developed a playbook for them to capture this value.
Crossing the finish line
Speed-to-value in pricing diagnostics has become crucial in navigating today’s dynamic business landscape. Our deep experience combined with a rich array of pricing tools, diagnostics, and benchmarks can provide the insights your pricing professionals need to drive higher profitability in a matter of months and give your company a sustained competitive advantage.