With most of the global economy struggling to recover from the COVID-19 crisis, one would expect households to be tightening their budgets. But how thrifty are consumers when faced with an actual buying decision? In particular, how attentive are they to the price tag? And are they always likely to go for the cheapest option or only under certain circumstances? Patrick Witschi (Witschi.Patrick@bcg.com) is an Associate Director (Singapore), Aparna Bharadwaj (Bharadwaj.Aparna@bcg.com) is a Managing Director and Partner (Singapore), Jean-Manuel Izaret (marketing.sales@bcg.com) is Managing Director and Senior Partner, Global Marketing, Sales and Pricing Leader (San Francisco), and Lauren Taylor (Taylor.Lauren@bcg.com) is a Managing Director and Partner (Dallas) with BCG.

The Pricing Advisor, May 2018

Introduction

While you may not be familiar with the term CPQ (Configure Price Quote), if you’ve ever ordered products online, you’ll have used a CPQ solution. Imagine you’re ordering a new smartphone online and are being guided step-by-step through the ordering process. You first select your product and then choose your options – colour, storage capacity, etc. The site likely recommends other similar or associated products (cross-selling) and may even recommend a more expensive version of the phone (upselling).

Once the entire price for your purchase(s) has been configured, and delivery, extended warranty and financing (as relevant) have been added in, a final price proposal is generated. If you accept the proposal, a sales order is created in the company’s enterprise resource planning (ERP) system and downstream processing begins.

Although automated CPQ solutions are now ubiquitous in the Business-to-Consumer (B2C) e-commerce market, there are still many opportunities in the Business-to-Business (B2B) market where CPQ solutions could help improve the efficiency and effectiveness of the quotation cycle. In recent years, the market for B2B CPQ solutions has been steadily gaining traction, with more and more companies implementing a commercial solution or developing their own. Market researcher Gartner expects the market to grow by 20% per year in the coming years.

Enabler for top-line growth

Companies implementing a CPQ solution reported a number of benefits which can be grouped into different domains.

Figure 1: Major benefits reported by CPQ users (source: internal PwC study)

Increased product profitability and deal size

Increased product profitability and overall quote size is the number one benefit reaped by new adopters. Many companies invest in developing smart strategies to better differentiate prices along customers’ willingness to pay. This focus on pricing comes as no surprise, as it’s hard to overestimate the potential an even modest price increase has on the company’s bottom line. For Fortune 500 companies, a one percent increase in average selling price, results in a whopping 13% growth in net profit. Despite this, we find that many struggle to capitalise on these strategic efforts by not translating their pricing strategy into clear actionable guidance and rules. Too often, pricing is still based on gut-feeling with significant freedom for sales reps, resulting in significant price scatter and undesirable price leakage.

CPQ solutions offer a powerful lever to put a company’s pricing strategy into practice and sell a product at the right price to the right customer by better guiding sales reps on the right price to target. On average, companies see a two to three percent increase in the realised average product price level after implementation. With a CPQ solution, sales reps have clear pricing guidance, tailored to each specific client, in the form of a price bandwidth within which they can deliver a price. If the price level falls below the bandwidth, an automatic authorisation workflow is initialised allowing management to safeguard the pricing strategy.

CPQ solutions can also help increase deal size by providing sales representatives with cross- and upselling recommendations. While basic rules-driven recommendations have already been a common feature of the CPQ solutions for several years, recently, vendors have been investing heavily in intelligent recommendations. Through advanced data analytics and machine learning on historical transactional data, current tooling is able to recommend products and services that have been sold successfully to similar clients and which may not have been suggested due to business rules.

Efficient product configuration

As in the B2C market, product complexity and customisability continues to increase in the B2B market. This not only poses challenges to operations, but sales representatives also need to be knowledgeable of an extensive product portfolio and its multitude of different configuration possibilities. Over the past years, time spent training a salesforce on a product portfolio and its different configuration possibilities has greatly increased, at significant organisational cost. Despite these training efforts, sales representatives not supported by software solutions for product configuration describe the process as tedious with a lot of ad-hoc questions, leading not just to additional costs, but making the quote turnaround time significantly longer, potentially resulting in lost opportunities. By incorporating product configuration rules and technical knowledge, CPQ solutions can be set up to facilitate the configuration process; where sales reps are guided through the configuration process to help them always reach a feasible configuration in a fraction of the time required to do so manually. The agreed configuration can be unambiguously communicated to production or engineering, as required, and integration with 2D or even 3D visualisation engines allow for a graphical representation of the configured product.

Consistent omni-channel customer experience

Over the past years, sales strategies have evolved from a focus on direct sales to omni-channel sales models where sales can happen through distributors, inside sales desks, self-service or even fully automated ordering. For any enterprise, selling its products through a number of different channels, it can be difficult to provide a consistent and excellent customer experience. Modern CPQ solutions offer support for a large variety of channels, while also integrating with ecommerce solutions and distributors’ ERP systems. Through their centralised setup, CPQ solutions offer a “single source of truth” for all channels. This way, companies can make sure that their product and service catalogue, as well as price levels are consistent across all channels. When a change occurs, such as a new product introduction or phase out, prices can be pushed through all channels at the click of a button. This central product and pricing repository can also serve as a powerful source of business intelligence to validate and adapt a company’s pricing strategy.

Streamlined quotation process

Over the last 10 to 20 years, most companies have implemented customer relationship management (CRM) solutions to manage their sales opportunities, accounts and customer relationships. Integrating a CPQ solution into the overall CRM process can substantially accelerate sales process efficiency. As products and services become more and more complex, many organisations have introduced team selling – the single sales rep on the road closing a deal by themselves is no longer the reality. Today, a full account team is involved in answering customers’ requests and closing deals. An integrated CRM solution with CPQ capabilities enables the team to keep all customer details in one place and respond to a request for proposal efficiently.

Sales reps spend on average 10 to 15% of their time processing orders. This includes repetitive tasks such as pricing and proposal generation. By automating a large number of manual steps in the quoting and proposal workflow, CPQ solutions can significantly bolster salesforce effectiveness and efficiency. With the entire flow automated, sales reps no longer lose time creating proposals and sending them to clients, leaving them more time to sell. With one click, the system can generate a quote proposal document, containing all quote details in line with the company’s visual identity and legal requirements. Digital signature solutions allow clients to accept proposal quotes and sales orders to be created in the company’s ERP system, with no need for manual intervention by the customer service office. As the entire process is also handled by one system, sales report generation and updates to CRM databases can also be fully automated.

CPQ software solutions: a crowded but maturing market

Over the past few years, the market for CPQ solutions has matured significantly. Established business solution vendors, such as Salesforce, Oracle, SAP (which recently acquired CallidusCloud) and IBM, have entered the market by acquiring CPQ solutions and incorporating them into their broader lead-to-cash solutions. Stand-alone solution vendors have reacted to this by heavily expanding their integration with multiple ERP and CRM systems, as well as ecommerce suites.

In our latest market overview, we identified over 150 different available CPQ solutions, ranging from basic document-generation tools to complete solutions with advanced capabilities. For enterprises interested in CPQ solutions, it can be a challenge to select the solution fit for their specific purpose, but it’s critical they conduct a thorough vendor analysis to ensure that the capabilities of their chosen solution are in line with their business requirements.

Three different drivers determine the added value of a CPQ solution for a specific company: the complexity of its customer portfolio, the complexity of its product portfolio and the number of transactions. A company offering a commodity product to a limited number of clients using only direct sales will benefit far less from the solution than a company offering highly configurable products and services to a large number of clients across different geographies and channels.

Solid business processes remain essential to reap benefits

Figure 2: Solid business processes are critical

All too often, companies jump straight into CPQ solution implementation, without putting the required underlying business processes in place first. As with most business software solutions, CPQ software can be a powerful tool to bring strategy into practice, but it’s no golden bullet that can solve all sales challenges. Before considering the implementation of a CPQ solution, all relevant business processes need to be in place.

Essential pre-requisites for a successful CPQ software solution implementation include: a pricing strategy translated into price-setting processes and price-realisation dynamics; a product portfolio in line with market needs in which cross- and upselling opportunities have been identified; a clear and consistent channel strategy and a trained and knowledgeable salesforce. In developing these business processes, it’s key to involve as many stakeholders and end users as possible. This ensures user confidence in the solution and that it’s not perceived as a black box.