Market conditions are often in flux, and B2B companies need to maintain flexibility in the face of unforeseen circumstances, such as supply chain disruption or swings in the economy.
This ongoing uncertainty puts salespeople in a painful position, requiring them to go back to their customers repeatedly with frequent price changes. They have been the “bearer of bad news,” if you will, from everything from limited product availability to repeated price increases.
B2B companies need to ensure that their pricing strategy accurately reflects real-time market conditions while driving understanding with the sales team as to how prices were derived and why price changes are necessary. Without this, sales reps are unlikely to trust the prices and revert to previous discounting behavior.
Prices also need to make sense to customers, without the need for sales reps to intervene, as more business shifts to e-commerce. The price transparency inherent with e-commerce has challenged many companies to rethink their approach to pricing, which has largely been relegated to a labyrinth of spreadsheets, emails and inflexible pricing systems of record. Being able to deliver a market-relevant, customer-specific price is critical regardless of sales channel, yet many companies’ existing technology infrastructure and commercial processes are not up to the task.
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What is Price Optimization?
Price optimization is a broad term that essentially boils down to using advanced math and analytics to understand how price is viewed differently by your customers. Price optimization is what your sales reps are trying to do in their heads every day as they engage with a customer based on their knowledge of that customer and other customers like them. But price optimization enables businesses to do that at scale across large product portfolios and large, diverse customer bases.
Let’s root this definition in the practical. Imagine a food service distribution company that delivers food to restaurants, school cafeterias, etc. One customer serves Mexican cuisine, and another primarily serves burgers. It makes logical sense that the burger restaurant is less sensitive to the price of jalapeños. Conversely, jalapeños are likely a key ingredient in many dishes for the restaurant serving Mexican cuisine. This restaurant will purchase a much higher volume of jalapeños than the burger restaurant and expect to purchase them at a more competitive price.
It sounds simple, but now consider the complexity of this food service distribution business. It likely has hundreds of thousands of SKUs in its catalog and thousands of customers. One sales rep may have 60 to 80 accounts.
Knowing the market-aligned price for every selling circumstance isn’t straightforward. Especially if this sales rep uses rule-of-thumb margin targets for certain product categories or only has a high-level price list that doesn’t consider these dynamics – or others.
Many complex factors are at play when considering price: How competitive is this region? How much business does this customer bring in? Do these prices reflect current costs? How important is this particular product to this customer in terms of overall spend? How frequently does this customer order?
Price optimization considers all these dynamics (and more) while simultaneously enforcing business rules such as: Don’t raise prices more than 5% in the Southwest region, but also ensure a minimum margin of 25% for a specific product sub-category.
Those in the pricing strategy seat can ensure that the sales team is equipped with prices that win the business and meet P&L goals.
Will Sales Teams Trust Price Optimization? Not Without Transparency.
Price optimization has the potential to drive profitable growth for a business. Yet, many are skeptical that their sales team will embrace, adopt and act on the price guidance.
Their concerns are not unfounded: Sales reps are not used to reliable pricing guidance and are skeptical that software or an algorithm can know their customers better than they do.
In most cases, sales teams aren’t provided with the contextual data to help them explain the rationale behind price increases to their customers. It’s not uncommon for price increases to be managed and communicated via email and spreadsheets. Over time, they lose confidence in pricing as they face increased push-back from their already-stretched customers. The result is often an increase in customer price exceptions and, ultimately, lost margin or volume.
Price optimization software offers unique advantages in times of inflation and market volatility. Price optimization can replace traditional methods of “across the board” price moves with more surgical and personalized price changes for each customer.
For example, if a customer is paying a higher price than similar customers under similar selling circumstances, they may get a smaller recommended increase or no increase at all. On the other hand, if a customer is underpaying relative to similar customers, volatility provides an opportunity to align that customer to what similar customers pay without overcharging.
Companies should consider providing visibility into the rationale behind the optimized price recommendations. Contextual pricing analytics can be easily embedded in quoting applications and order entry tools to help provide additional decision support for sales reps, making it straightforward for sales reps to see one customer’s price relative to other customers with similar buying behavior. Transparent price optimization boosts the sales teams’ confidence in price guidance and ensures that necessary price increases stick with customers.
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Price Optimization Sales Team Bonus: Speeds Ramp-Up Time for New Reps
You may be thinking, my best sales reps know how to price effectively! And you may be right. However, the challenge for the B2B sales leader is twofold: High-skilled reps are shifting out of the workforce just as a new generation is ushered in, creating a massive skills gap.
In today’s cost-volatile and inflationary environment, pricing in line with the market to meet revenue and margin objectives has never been more critical. There simply isn’t time for newer sales reps to learn through experience by spending years in the field.
Given that price optimization considers many complex factors across a business, it imparts the knowledge of your best sales reps into every price point. It’s thinking like your best salesperson, considering the factors they would and delivering transparent, market-aligned price guidance. Many B2B companies provide their sales team with an optimal price range from which to negotiate.
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Maintain Consistency Between the Sales Teams and Other Channels
The steep rise of e-commerce has posed a unique challenge to B2B companies: How can I present prices online that entice new customers, honor existing customer pricing, and make sense in the context of market conditions? For the sales team, how can we ensure that the price quoted to a customer today is the same as what a customer would see online? This barely scratches the surface of the hidden landmines that e-commerce pricing in B2B can present.
Certainly, the sales teams’ relationships with customers will always be critical. It’s never ideal to equip your sales team with prices that are inconsistent with what customers will see in other go-to-market channels.
With a centralized source of pricing truth integrated into all go-to-market channels – eCommerce, CPQ, ERP, CRM, order entry tool or otherwise – it’s possible to ensure pricing is market-aligned and consistent for customers.
Conclusion
Rather than giving sales teams another pricing spreadsheet that lacks transparency and relevance, embrace price optimization as a cornerstone of your modern commerce solution. Doing so can instill price confidence in the sales team, achieve P&L goals, ramp up sales reps faster, and enable a consistent customer experience across channels.