PRICE OPTIMIZATION & MANAGEMENT – A PRIMER
Price Optimization & Management, refers to a suite of technology solution and methodologies that an organization can leverage to effectively manage the pricing process. Solutions in the market help with various price optimization and management activities ranging from:
- Collating historical sales data
- Incorporating Fluctuating Raw material and vendor costs in pricing
- Benchmark or Peer-to-Peer Pricing
- ML-based dynamic price recommendations
- Product portfolio positioning & List price generation
- Segment Specific Price Guideline Setting
- Product/Region Specific Price Rule
- Price Scenario Simulation
- Margin vs Conversion Steering
- Price Performance Monitoring (BI & Analytics)
- Price Recovery Campaigns
These activities when integrated into a structured process and supported by the right data, technology and governance can help set better prices, close profitable deals and build stronger client relationships.
THE KEY ENABLERS
DATA: Companies have access to vast reserves of data – both internal and external, such as historical transactional data, price promotions, customer negotiation history, customer order pattern, macro economic data, competitor propositions and prices etc. Price setting is influenced by all these factors and many more and in order to have market and risk-adjusted pricing, it is paramount that any price optimisation solution with creating a database/data lake with a reliable and continuous stream of this data.
MACHINE LEARNING MODELS: Mathematical and Statistical models are built on the aforementioned data to find pricing patterns, trends and dynamics unique to each company. These models generate differentiated price recommendations per deal, i.e. per customer – product – deal combination for sales to use in negotiations. Customised price models help inject the operational pricing processes with AI, enabling companies to continuously adapt pricing to market conditions and make pricing a level for growth
BUSINESS GUIDANCE/STRATEGY: A sound and well-thought out pricing strategy forms the guiding light for a price optimization and management solution. Business executives need to give clear guidance on the positioning of the product
portfolio, concession for different customer segments, policy on passing costs, price recovery targets, acceptable risk etc – since these form key input for the tuning of the mathematical models that give recommendation for operational price execution.
SOFTWARE & TOOLING: In order to fully leverage a Price Optimisation & Management solution as well as embed in it daily operations, supporting and enabling tools needs to be made available. Executives and execution functions need to have the ability to run analysis and simulations on pricing as well as be able to get approvals and send quotations with ease. Having all pricing insights, actions and functionality accessible from one central place, like CRM, is not only efficient but it also improves acceptance of such initiatives.
GOVERNANCE: What is not measured in not managed, goes the old adage. This holds perfectly true for Pricing as well. Price Performance Measurement & Management is critical to the success of any pricing optimisation and management initiative. It is necessary to establish and monitor KPIs such as margin improvement, conversion, price developments, compliance to price recommendations, price variance, value recovered etc. This not only helps to justify the business case for investing in such initiatives but also provides a feedback loop for further improvement and evolution of these initiatives.
Price optimisation and management solutions can enable organisations to turn their pricing functions into a strategic lever used to grow and stay above competition.