Improved technology – and leadership from finance – may help companies optimize their margins.
Russ Banham, CFO Magazine
June 1, 2011
Price optimization is a nice buzz word but in reality hard to achieve. Companies should start the pricing journey less sophisticated and first plant the ground and not with complex algorithms to optimize the prices. You should start using price analyzing tools to determine pricing opportunities. To harvest the low hanging fruits you need to transfer your findings in (segment specific) pricing rules, guidelines such as target and floor margins, escalation steps etc. The price management and tool support of price execution will improve our pricing tremendously. After you have the basics right you could start thinking about fancy algorithm to optimize your prices.
Posted by Martin Wricke | August 15, 2011 02:50 am
Pricing software has now evolved to the point where it is not just accessible to large and complex organizations. Yes, transaction optimization that includes elasticity and forecasting information does still require a good amount of data. However, other "optimization" techniques such as market based research and simple calcaluations that are not available with offline tools such as spreadsheets and databases are now integrated into many of the mid-market solutions. For example, PROS now has solutions for the mid-market that can handle the execution of market based pricing strategies for both price list setting and quotations. The availability of this software is definitely moving to SMB companies and those who execute continue to see a price advantage.
Posted by Patrick Schneidau | June 21, 2011 10:26 pm
We see this focus in companies of all sizes - large Fortune 100 to the middle/smaller company market. Now that companies have learned to do more with less, they are focused on managing margin while capturing market share. Market share is especially important in markets that are flat or are not growing. Proper pricing ( given the product/service matches the price) will help grow the business. The new software tools will certainly help finance be more accurate and efficient. However, in the end it will be the Finance professionals who can partner with marketing, sales and operations team that will help their companies achieve their goals.
Posted by Jim Wong | June 14, 2011 08:54 am
Per, I have a different point of view. Price optimization software work also for mid sized companies. Not with model based and statistics of course (as their is often not enough data), but the execution part of it: simulation, workflow, deal management for example. 10 years ago, people were saying the same thing about CRM, and look at what salesforce.com did. But you are right, market research, consulting, changing methods is also needed if a company (whatever the size) wants to succeed in such a project: a software is only a tool and users have to adopt it!
Posted by Matthieu Bruckert | June 07, 2011 01:22 pm
This is a good article, but it is not clear on two points: 1 - Price Optimization software is only for companies with a large number of transactions and a large number of SKUs. Typically no less than 100,000 transactions per month and 10,000 SKUs. Only then will the formulas in the software work. Thus, by definition, it is limited to large companies and the software itself is priced well into 6 or 7 figure territory. 2 - Price optimization using price specific market research and manual analysis of a companyıs sales data is a well established method that works very well for small and mid-sized company with much fewer transactions and SKUs. An added benefit of such price specific market research is that the company will also know, in detail, the decision landscape, value drivers and price drivers of their clients, and by replacing the often inaccurate and anecdotal information companies get from their sales people with this hard data, provides a path to increased sales volume and higher profits. Per Sjofors CEO Atenga Inc
Posted by Per Sjofors | June 01, 2011 10:34 am© CFO Publishing Corporation 2009. All rights reserved.