Confession time: I tend to suffer from analysis paralysis. The world is filled with so many variables and my A.D.D.-addled brain does its best to try to incorporate every single one of them into the decision-making algorithm. For example, I have giant spiral binders of data and analyst reports dedicated to a recent car purchase. In the end, I bought the Jeep Grand Cherokee mostly because I just liked it. But I could back up that decision with a lot of information! This trait certainly has its upsides and downsides. It has made me a reasonably sound critical thinker. It allows me to consider outside-the-box solutions. I think it has made me a good pricing director. Complex problems should be considered carefully, and nothing can be quite as complex as B2B pricing.
“With enough reflection, even the most straightforward problem can be turned into an unsolvable conundrum” – Anonymous
I’ve had the opportunity now to see this process in action at several large organizations when it comes to making a decision about investing in enterprise software. In my case specifically, I’ve often seen this play out in the pricing/sales optimization and management functional area. It’s a big move and requires involvement from several different parts of the company. In the end, there seems to be a common set of questions that determine whether a company actually pulls the trigger. These aren’t criteria on how to pick one software vendor over another. These are the big obstacles that usually prevent an organization from doing anything at all. It’s not right versus wrong. Each has their own merit and reasoning, but I’ve seen companies take very different approaches to each of these areas and make very different decisions.
When to Start a Pricing or Sales Project?
When considering the pros and cons of starting a pricing project (in the context of doing it before), after or during each of these cases, you should ask one fundamental question: “How broken is our current process?” Once a company is willing to look under the hood of their existing technology, they often start to see issues that might be larger than the original problem they were trying to solve. If the current pricing processes are in bad enough shape, a fix can often fund the investment of other systems and cause a re-prioritization of which technology to invest in first!
Case No. 1: Pricing Before Other Technology Projects (ERP, CRM, CPQ, MarTech, eCommerce, etc)?
Many stalwart business professionals have the 1000-yard stare associated with having been through an ERP system transformation. “It changes you, man!” Any large-scale enterprise system upgrade often opens and then sometimes temporarily shuts the door to investing in pricing/sales technology. When a decision has been made to invest in another key enterprise application, it usually follows that the organization takes a long, hard look at several other business processes. Pricing is generally a core component of any business’s DNA and is always part of the discussion. Once the door is opened to making a change, looking at technology to improve systems to manage and optimize pricing is a natural move.
Once a general pricing health check has been done there are usually a few pluses and minuses to think about when considering whether to start a pricing project before or after other enterprise changes.
- Reduce potentially unnecessary configuration
Often, particularly with a pricing project that integrates with other backend systems (like an ERP), there is usually custom logic configuration work that needs to be done to allow the new system to generate similar in-market prices to match those of the old system. If the company is considering new pricing technology, the vendor will usually consult on how those prices are currently derived and explain how a new pricing technology will be become the system in which that pricing logic is handled. This allows the backend system to simply exist as the repository of these new prices (for accounting purposes) and has the potential to reduce redundant configuration work in both an ERP and a price management application.
- Cloud-based integrations are now more portable
With the move of most SaaS providers to cloud-based systems versus the traditional on-premise approach, the issues associated with implementing, integrating and customizing an application are much more lightweight than before and are primarily in the hands of the technology provider. Work can be done outside of a customer’s internal technology stack. Connecting the systems can then take place in a much more portable manner. Connecting, de-connecting and then reconnecting to new technology is generally a much simpler task and requires less sequencing and resources.
Even though cloud-based SaaS requires less custom configuration and integration work, you do still need the engagement of IT resources. Depending on the timing, the IT organization’s project load and its technology roadmap, there are only so many IT team members available to help manage another project. A pricing technology investment might just need to wait in line.
Similar to IT resources, there is usually (always) only so much budget to go around! The case can be made that a pricing project typically pays for itself within the first year of implementation, but there are still costs associated with the investment. If those dollars are not in the budget, there is not much that can be done about it.
Case No. 2: Before a Data Cleanup?
This scenario has always felt like a combination of pragmatism and embarrassment. It’s the heart-pounding panic of a good friend wanting to stop by the house unexpectedly when you have dog hair on the sofa and empty Chinese food boxes in the family room. Of course, you want to see the friend but, “Oh my gosh this place is a mess!” It’s all understandable and there are a couple of ways to prevent letting a “messy room” keep your company from making a change that can have immediate impact on the bottom line.
- Get help! Your data might not be as bad as you think
Often, a problem that you think is embarrassing or unique is something your vendor has seen a hundred times before. They will not only not be shocked but will also likely have resources and techniques to help get your data cleaned up and in a state that it can be worked with. Your company likely has plenty of useable data and data sparsity is a common challenge that can be easily addressed.
Analogous to planning a big event at your house like a graduation or birthday party, nothing motivates you to get project work done quite like a deadline! The forcing function of a specific project will often light the fire to take care of a long-neglected issue.
Ultimately for a pricing project to be effective you do need a certain amount of reliable data that can be accessed. If your systems are in such a state that you know the data is inaccurate and/or you simply are not capturing the right elements anywhere, then there is no point in trying to derive meaningful insights from it. This again is where engagement and discussion with a reputable vendor is a worthwhile exercise, as they can help make that diagnosis. Additionally, one of the cleanest, most reliable datasets lies in your transactional history, which should be a fundamental data set taken into consideration from a pricing perspective.
We Interrupt this Article for a Change Management PSA…
Before I jump in to the two final scenarios most companies contemplate before deciding to go forward with the implementation of pricing and sales technology, I’d like to offer a short aside on a critical topic: change management. No matter what your criteria is to move forward with deploying pricing and sales software, pricing is integral to a company’s DNA. In many ways, it is the manifestation of how a company sees itself. “Am I the low-cost provider or do I deserve a premium in the market?” Inside each of these cases, there should be some consideration of how well (or how poorly) your company is poised to accept the change being considered and how challenging it will be to the morale of the team being asked to undertake the change.
We now return you to your regularly scheduled content…
Case No. 3: Before a Company Re-organization?
If there is one thing I have learned from more than 20 years in business, it is that there is nothing senior leadership loves more than a good old-fashioned re-org! Whether it’s to align to market segments or move to a product line focus, there never seems to be a shortage of suggestions on how to re-arrange the folks inside your company.
- Pricing technology can provide insight that drives success
One of the benefits of an Artificial Intelligence (AI)/Machine Learning (ML) based pricing system is that its foundational calculations use transactional data to develop precise customer segmentation. This insight into the buying patterns of your customers can not only help ensure that you are setting market prices accurately, it might also help the newly re-aligned sales teams better understand their customers.
- You might not have enough data in new markets or a well-defined approach
Sometimes a re-org is done to fundamentally shift the way a company goes to market. It might be switching its approach to pricing entirely (i.e. changing from a product- to service-based approach) or entering a new market. In that case, it might be worth waiting for the new approach to get traction and taking the opportunity to gather meaningful transactional data before trying to use technology to optimize the recommended prices.
Case No. 4: Before financial recovery or expected ownership change?
This scenario obviously hits close to home in light of the recent economic challenges caused by the COVID-19 pandemic. Unstable markets and/or working in an industry where there is a significant amount of consolidation taking place can make the decision to invest in technology challenging. Depending on the circumstances, there are conditions that make the investment compelling, but in some cases the timing just might not be right.
Innovation (or sometimes automation) is often the result of challenging times. The old axiom “necessity is the mother of invention” is as true today as it ever was. In a time in which a company needs to maximize revenue and profitability (or – unfortunately – must cut headcount), technology can be brought in to automate processes otherwise left to humans. Pricing technology typically has a return on investment of 10-20x. When you need to find every dollar available, technology that uses AI/ML in areas that historically have been people-driven may be an investment of necessity.
This is something of a companion piece to the first point. Even if an organization can weather the storm of an economic downturn, it is likely that their competitors are using the situation to streamline operations and look for systems that will make them a stronger player in a more competitive market. Just because a company can survive an economic downturn without change does not mean it shouldn’t change.
- Being acquired is inevitable or desired
This can really be viewed two ways. First, if your company is in the market to be acquired and the likely suitors already have pricing technology in place, paying for and implementing a different system than the one they are currently using may be a poor use of resources and an obstacle to integration down the line. On the other hand, if as part of the investment thesis a strong margin improvement story is critical to your pitch to potential buyers, then investment in a system that drives that activity could be seen as a value-add during valuation.
In the end, there isn’t typically a 100% right or wrong answer on when to invest. One of the elements that seems to be consistent, however, is that considering the alternatives in and of itself can be the greatest source of anxiety.
“A study at MIT Sloan Management Review reports that 63% of managers believe the pace of technological change in their workplaces is too slow, with the most cited obstacle for digital transformation being a lack of urgency. They also express that the benefits of newly introduced tools are poorly communicated. With the need to constantly improve productivity often comes the pressure to find the correct technology and to have it integrated in a timely manner.”
As someone who has been on both sides of a technology decision (both as a buyer and seller), the simplest advice I can give is this: be informed, fully consider the options, and listen to your instincts. There is no perfect answer on when the time is right, but if you position your company to consider the different variables that present themselves early, you will be able to make a decision that aligns with the corporate strategy and has a better chance at long term success.