BrazilHow B2B companies can become stars in digital pricing
Companies across B2B industries are launching an increasing number of digital pricing transformations to create sustainable value. Experts from Simon-Kucher & Partners explain what is driving the trend, and how B2B players can overcome traditional execution challenges to become ‘pricing stars’.
The need for digital pricing transformations in B2B environments is driven by increasing commercial complexity. There are five trends underlying this case for change:
First, product assortment growth is resulting in an increasing number of products that need to be priced. Product bundles can also render additional value, and with every product added to the portfolio, the number of product combinations grows exponentially.
Second, enhanced customer data reveals diversified customer segments with unique value drivers. Willingness to pay can differ significantly based on the specific needs of those segments. For this reason, different pricing strategies and price levels are required to grow revenues from customers and segments.
Third, internationalization and geographic expansion are adding complexity. New markets may not only require different price levels but also different pricing approaches due to local competition or the strategic decision to first grow market share. This often differs from the conventional pricing approach taken in more mature markets, which is more focused on monetization.
The fourth complicating factor is consolidation. Non-organic growth has caused local pricing approaches to diversify. Centralization requires a harmonized and structured pricing approach that works for all local organizations.
Finally, increasing market transparency and rising online competition are forcing companies to improve their responsiveness, which is often only possible using digital pricing systems.
Understanding pricing excellence
Against this backdrop, how can companies achieve pricing excellence? The first step revolves around having a clear understanding of the current digital pricing capabilities. This can be done by analysing the state of two factors: pricing maturity and digital maturity.
Pricing maturity
Pricing maturity represents an organization’s capabilities to achieve the prices it deserves. These include the pricing strategy, pricing logic, and value capture.
Companies with a well-defined pricing strategy have a good understanding of which product-market combinations can help them achieve growth, defend their position, and pinpoint where they can capitalize on their market position, both now and in the next one to three years.
Mature companies have a clear pricing rationale that leads to harmonized pricing, including a strong understanding of delivered value. The pricing logic is translated into a structure, which guides pricing decisions and creates explainable price differences across regions, segments, and product groups. Ideally, deal-specific price differences are highly traceable and internally transparent.
Particular in B2B environments, companies struggle to reduce the gap between the value they create and the value they capture. By understanding the differences in value and price level compared to peers, mature companies know what premium they can charge with respect to their competitors.
Digital maturity
Digital maturity encompasses an organization’s capabilities to capture all relevant data, combine the data, and visualize the right data to make impactful decisions.
In terms of data collection, the most mature companies have highly sophisticated data collection systems and storage that capture all important pricing and transactional elements (e.g. discount levels, negotiation information, deal-driver scoring).
When it comes to data integration, the most mature companies combine their data and store it in a centralized data lake that represents the single source of truth. The data in the lake is clean and immediately ready to use for analyses, and the data sources outside of the lake are well connected and integrated – and easy to link to enrich analyses.
From an analytics perspective, the most mature companies have advanced dashboard systems and sophisticated BI tools with clear ownership and actionable outcomes. The tools’ output is advanced but easily interpretable.
Pricing stars
When combining these two capabilities, digital pricing companies can typically be sorted into different levels of overall maturity, with so-called ‘pricing stars’ the most advanced. Pricing stars combine high commercial excellence with high technical maturity to drive analytical pricing decisions. The few companies that achieve this status can quickly accelerate pricing performance through digital and commercial synergies and are able to translate data opportunities into concrete commercial response strategies.
Delivering the results
Even after companies have gained a good understanding of their end point and have fixed the basics, the digital transition to pricing excellence can be challenging. A successful implementation could be broken down into three steps:
Price setting: Price setting is needed to improve pricing maturity. These projects include the design principles for pricing as well tailoring the pricing structure. Part of this process is to define list prices, discounts, approval levels, and margin thresholds and integrate these into a harmonized price waterfall.
Price guidance: Once the pricing strategy and structure are in place, it’s key to enable sales in their quest for better prices. Here, setting up a digital price engine that includes a user interface and standardized output is critical for success. Configure, Price, Quote (CPQ) software can be useful to enrich CRM environments and take price guidance to the next level.
Price governance: Once pricing is fully in place, measuring price performance is increasingly relevant to tweak and improve the system and the sales organization. Peer pricing solutions and analytics dashboards allow meaningful comparisons to be made at granular levels.
Then, to make the change stick, attention should be given to change management, including aspects as leadership commitment, an aligned business-IT agenda, and training and knowledge sharing to ensure that sales team embrace the new ways of working. Finally, embed roles & responsibilities clearly within the organization and monitor pricing performance to build a continuous improvement cycle.
Authors of this insight are: Arjen Brasz, Wolfgang Mitschke, David Boer and Pepijn Scholten. All four are members of Simon-Kucher & Partners in the Netherlands.
