Common Challenges that Prevent Companies from Moving to a Strategic Pricing Strategy

Are you frustrated with your current price management tools? For companies to gain an understanding of the serious issues they are facing, like declining margins, they need take advantage of pricing technology and practices that increase their bottom lines.

Optimized strategic pricing offers high pricing sophistication along with high business value. To offer optimized pricing, companies must be able to utilize, analyze and apply data from drivers across the organization along with competitive data. However, companies struggle to optimize and evaluate all of the elements that affect spare parts pricing.

Companies need to start with the basics – technology and operations – to move from tactical to strategic pricing and ultimately achieve optimized strategic pricing.

The Current State of Technology Limits Price Optimization 

Many organizations are still using ERP systems or spreadsheets to manage pricing. ERP systems are limited to a cost-plus approach and lack the functionality to apply different cost sources. These systems are not designed to handle simulations and visualizations, are poor at managing price execution, and struggle with price evaluation and adjustment. Spreadsheets are clumsy for handling large volumes of data, including extracting and consolidating, as well as for generating complex analyses. Data governance, pricing updates and pricing practice audits cannot be effectively put in place across organizations if spreadsheets are employed for pricing because they are designed for a single user.

Pricing Teams are Tactically Focused on Pricing 

Despite headcounts being reduced, pricing analysts do not have the technology tools to enforce strategic pricing. Instead, they are tactically focused on gathering data for review within disjointed spreadsheets or relying on ERP systems, which are limited from a pricing optimization perspective.

Many companies can identify specific pricing pains, such as rebates, new part pricing and price complaints, but attempting to solve these problems without a clear view of where margins are lost still does not result in an optimized strategic pricing strategy. Many pricing teams only use cost plus pricing, which doesn’t allow for price or customer differentiation.

It’s likely that the pricing team is not spending any time doing segmentation. Without segmentation, companies cannot produce differentiated pricing for higher margins. In addition, overstretched pricing team members probably don’t have the time to gather competitive intelligence, and even if they did, they would most likely lack a centralized, accessible place to store the information.

Without a strategic pricing strategy, people can create as many problems as technology. In many companies, leadership is unaware that different price analysts have different price philosophies. For example, one analyst may give weight to a characteristic that another does not. In addition, delegation of authority may not be clear, allowing lower-level analysts to make price changes that can potentially cost the company millions of dollars.

Pricing Solutions Set the Stage for Optimized Strategic Pricing 

Without a powerful pricing solution, organizations are not able to drive business value and address their pricing pains. Structure naturally results in higher revenues and more margin. With the goal of optimized strategic pricing, companies can start to build the operational structure needed. However, it is critical to have a pricing solution that offers high pricing sophistication, allowing companies to create an audit trail, run simulations; handle notifications, approvals and price distribution; and manage reporting.