Where are you on the pricing maturity journey?

Vistex has been helping companies develop their data governance models for 20 years, putting them on the path to model-driven, embedded price management. Depending on their capability, some companies need more time to embed the process into their corporate culture.

Simply put, there are different phases of Price Management Maturity. The Döhler story shows that the company was already working on its price management requirements before it began implementing the SAP Data Maintenance for ERP pricing option from Vistex.

We have found that the combination of the client company's knowledge and Vistex's is the optimal solution when it comes to price management. But the willingness to change all relevant factors is just as critical here to achieve a higher level or better pricing management. The following factors should be considered when companies are striving for the journey of Pricing Maturity:

• Do the professionals have the right skillset?
• Are processes defined so that employees are in the right feedback loop?
• Is the exact message communicated about the need?
• Is there a governance model?
• Is management actively involved (or is it disengaged when it comes to technology investments)?
• Does this data-as-valuable-asset culture permeate the entire enterprise?

The basic price management level

At the lowest level, companies will have basic governance that is ad hoc and situationally independent. This may include a pricing strategy that is restricted to a limited number of prices. In terms of technical expertise, many companies at this stage use Excel as a price management tool and Microsoft Word for contract design. When these companies use analytics, they are likely to be spreadsheets with no follow-up or strategic analysis. Their analyses are basic pre- and post-deal analyses.

In the basic price management phase, the factors of the product market are given secondary consideration - the competition is largely disregarded. Market power has an impact on pricing strategy, but these companies do not consider it with the necessary importance. Any impact on profitability is after the fact.

Not all members of management will know what is happening on the ground in individual countries to meet local needs. A site might say, "We need to lower the price," but someone in management should understand why before approving the price reduction and undercutting standard prices.

Summary of problems found in the base price management stage:

• The pricing strategy is mainly based on the history
• There is no global strategy
• Product market factors are not strongly considered
• There is limited customer classification management
• Contracts and all analyses are managed in Excel
• The impact analysis is performed retrospectively
• The review and approval are ad hoc

The price management stage

Once a company reaches the price management stage, it has a global, regional and local pricing strategy, but often this strategy is not fully implemented. Basic price and margin targets are defined. Management has control in each element as long as corporate policies are met. When managers have revenue management tools, they are primarily responsible for executing pricing, rebates and discounts. Using Excel for analysis is likely here, but it still only looks at a historical view that shows what happened. The tools offer limited insight into what can be done differently in the future, lacking a comprehensive forecasting function.

To briefly summarize:

•  Pricing strategies are limited to price floors, margins and sales/revenue targets
• The revenue management tool is mainly intended for execution
• The analytics are based exclusively on a historical perspective

The strategy management stage

In the strategy management stage, the company now has an actual pricing strategy and the basic ability to perform relevant contract analysis. The pricing strategy has been defined beyond just prices, such as: "Here are the discount processes I will offer, and here is why." The pricing strategy is more global, controlled, and impactful, and employees have an understanding of the entire company. Now, when the company receives a request for proposal, it has pre- and post-contract analysis that is more specific to those deals. This can lead to finding a specific pricing strategy. There are feedback loops, policies, approval and workflow routines. In certain regions, such as Europe, a price change in Germany, for example, could affect pricing in six other countries because of local reference pricing rules. The company needs to know what it is doing and the impact. This involves extending analytics to a new level of awareness. The following questions are asked:

• Does the overall effectiveness of the program give us any insight?
• What are the strategy implications of rebate programs in a gross-to-net scenario?
• How much does a change affect the minimum/maximum price?
• Did we still protect the margin in the result?
• Did we end up paying out more rebates and lowering our net margins?
• Are we really effective?

To briefly summarize:

• Pricing strategies are defined beyond just prices
• Bonus programs are defined and approved
• Bid management and deal analytics are fully integrated into revenue management
• Management controls are integrated and automated
• Analytics now provides insights into program effectiveness and analytics

The model-based management stage

The model-based management stage is the aspiration for any company seeking Pricing Maturity. Here, the company has defined models and it knows the impact of certain decisions before making them. From various models, the company can select the best one and make specific adjustments to achieve the desired impact. For example, the model-driven decisions are simulated and made before a product is made available on the market. Ideally, therefore, the right decision, based on the program's proposed recommendation, can be made in advance - avoiding mistakes and saving money.

Now it has a fully automated tool, from front-end to contract negotiation, which is based on analysis functions. The company not only defines parameters, but also has early warning systems. It starts with feedback loops and continuous updates to evaluate whether a program is profitable. Instead of continuing it for the next two years, the company knows immediately that it should be discontinued. Optimizing revenue means running the right programs at the right time and dealing effectively with customers.

To briefly summarize:

• Real-time models use multidimensional data, such as market data, product lifecycle, and customer segmentation
• The company is fully integrated with revenue management and CLM tools
• Real-time feedback loops evaluate pricing effectiveness
• Organizational commitment to excellence in pricing and revenue optimization.

The crucial role of software

Companies supported by software that manages the entire lifecycle of their go-to-market programs will have a strategic advantage in the marketplace. By capturing data in a structured repository with machine learning capabilities, these companies can get accurate answers and make informed decisions in their price management strategies. At the end of the day, information leads to insights and insights lead to profits, true to the motto "knowledge is power".

About Vistex

Vistex is a global software company with more than 20 locations worldwide. The company is a pioneer in enabling other companies to better leverage their products and services through go-to-market programs. Vistex's software and services help companies increase revenue and reduce costs by managing trade, distribution and vendor programs, pricing, performance incentives, and rights and royalties.