DETECTING LEAKAGE: Organizations typically bleed money on the various invoices and outvoice commercial elements the very step is assessing where this leakage is coming from.
As an example, P&L indicates leakages at the frontline through operating margins. Assessing your P&L is the first step to identify your margin leakages. This step allows you to investigate pricing decisions made that may kill your business.
We see that in B2B companies are closing nearly all deals, their entire business, based on face to face negotiations. A lower degree of commercial control is a symptom of value leakage.
Operating without standard guidelines when they can give rebates. Results in the risk of losing customers, or if you don’t segment your customer based on price then you lose out on pricing opportunities.
Proliferation of enterprise- management-information systems and self-service pricing exploration tools have made it easier to keep tabs on common sources of leakage.
If you have figured out that you are bleeding margins, then how can you recover?
- Reviewing the performance of the pricing organization using a structured framework as well to guide data analysis, stakeholder interviews, and surveys can help identify sources of margin leakage.
- Drawing analysis on order quantity, order frequency, and returns can show the leakage due to customer order behaviour.
- A Pareto based segmentation model is quantitively calculated (based on margin, revenues, or volume), is easy to understand, and provides a risk-assessed approach towards margin recovery.
Pricing – Just like any other discipline it is the conduit for everything that is taking place in the organization. When pricing managers go about setting pricing that must think about a lot of quantitative variables for computation. Oftentimes, these variables result in uncontrolled discounting which is visible in the form of excessive price variability. While this indicates a lack of commercial control, it also provides an opportunity for price optimization and value recovery.
Commercial front-runners are breaking through legacy systems, combine-utilize data from within & outside the organization to enrich pricing and commercial decisions.
Dynamic pricing algorithms can predict margin over and above the fluctuation in price drivers such as commodity costs, market demand and supply and other varying factors.
BENCHMARK PRICING IS THE FIRST STEP IN THE PROCESS TO START VALUE RECOVERY
A “smart average a.k.a. a benchmark” is calculated based on a cluster of deals with similar attributes. Deals that lie below this benchmark are poor performers/price outliers and intended for price revisioning via value recovery campaigning.
DECADES OF ORGANIZATIONAL DATA: Like transactional sales data, customer negotiation history, cost development, customer aggressiveness index, etc.
IS USED TO CREATE A CUSTOMIZED PRICING BLUEPRINT IN THE FORM OF A PRICE ALGORITHM: Using ML Models by finding patterns, trends, probabilities, and drivers of price and profitability.
PROVIDING PRICE RECOMMENDATIONS PER DEAL TO SALES: Helping them improve the return on the deal (margin) and/or probability of winning the deal(conversion).
In order to effectuate the new strategy for reducing customer churn and improving acquisition performance, with the least amount of penalty on margin, some advanced simulation, scenario analysis and model steering techniques were built upon the existing dynamic pricing algorithms
B2B Pricing is transforming itself rapidly into a data-driven, flexible, and fast operating function.
KEY TRENDS IN PRICING:
- Transparency and availability of data make deal-making more advanced and negotiations more challenging.
- Data Science has become a critical factor of discriminating success in the price determination and execution process.
- Steering the execution of business processes with smart pricelist & discounting concepts. Understand to formulate targets that empower.
- High Granular Targeting & Differentiation of product and customer segments and tailoring to sales channels.
- Unlock information to sales and enable negotiations with new and types of information for better deal-making orientation.
- Predictive pricing and other advanced pricing concepts become a new weapon to outsmart the competition.
- Empower the Frontline by automating essential Pricing Support Tools to steer sales forces and delegate decision making.
- Differentiate pricing execution towards segments and start thinking in sales channels with differentiating price policies.
While taking decisions the management of change of Pricing-Based Value Recovery is necessary
- Define Paraments and Guidelines for “Out of Range” cases
- Find Deviations (& Granularity), a list of customers with negative price variance (AP<Requirement)
- Create customer action plans, get account managers to create a plan to bring their ”out of range”
- Follow up & adapt with account managers on the outcome of their negotiations. If necessary, adapt strategy and redeploy plan.
- Record and Refresh, once target has been achieved, ensure outcome (of negotiation rounds, the price offered at different negotiations) is recorded.
MRD’s pricing teams are made up of experienced pricing experts that have proven that in times of distress, we can identify and correct margin leakage with a smart, simple, and pragmatic methodology for swift and risk-adjusted recovery of margins.