Revenue Optimization & Pricing Insights

Our partners at PriceBeam wrote an interesting article about how to use willingness-to-pay research internationally:

https://blog.pricebeam.com/6-ways-to-improve-international-market-launches-through-pricing

At RevBeam we can help with the strategy:

• Creating a framwork for monitoring and comparing international prices
• How to set up an internal language for talking about and comparing price levels, discount types, terms & conditions
• How to adjust to local willingness-to-pay but still avoid parallel trade
• Coordinating pricing on international launches
• Managing prices to international key acocunts, who buy from you in multiple markets
• Sharing best practices in terms of markets
• and much more.

Get in touch and see how we can help you.

Some great new pricing research methods from our friends over at PriceBeam:

• Willingness-to-pay: understand customers' willingness to pay for a given product or service. Really useful when launching new products or establishing the overall price positioning of an existing product. 
• Comparative willingness-to-pay: conduct WtP research across several products, be it your own or competition, at the same time, and compare the different levels. Great for optimizing the pricing of a portfolio of products, or benchmarking against competition. 
• Value Attributes: research not only the overall willingness-to-pay of a product or service, but also understand the individual value drivers: what features are valued and by how much by the customers. This type of pricing research is great for new product pricing but also for price increases or to establish what features to highlight in marketing communication.

RevBeam is a partner of PriceBeam and we use their great solutions when helping our clients set and optimize their pricing.

Exciting webinar organised by our partners over at PriceBeam:

https://info.pricebeam.com/marketing-investment-decisions

Decisions about marketing investments can of course use many different inputs. Pricing Power and customers' willingness-to-pay should definitely play a role. Join the webinar for free.

Dynamic Pricing models are used to dynamically change prices, either at relatively high frequency, or on-demand, i.e. each time a customer queries about the price for a given product or service. The parameters in dynamic pricing can be many, including:

• costs
• capacity
• stock
• customer's willingness-to-pay
• customer's previous purchase patterns
• margin expectations
• competitor prices
• seasonality
• customer behaviour on e.g. a website (are they first time visitors or have they queried the price before)
• price elasticity
• and much, much more.

Price elasticity of demand has been in the economic text books for many decades now and while the classical demand curves with their price elasticity assumptions have rightfully been criticised for being too far away from reality, there is still room for the use of price elasticity in dynamic pricing models, in particular in industries and businesses with high transaction volumes.

Having statistically significant numbers for price elasticity allows for modelling what happens when price changes in the model. Similarly, other elasticities for any of the other parameters, such as competitor price changes, can be used to make dynamic price changes when the model predicts it is necessary. Or to stay put despite competitive price changes, because the model "knows" that the volumes sold for this specific product is not impacted by competitors' moves. 

The operative phrase above is "statistically significant". In other words, if you have a lot of historical transactions to base the elasticity parameters on in the model, then it is often a good thing to use price elasticity in dynamic pricing. If on the other hand you have only few data points, then modelling based on historical data is not useful. 

Pricing is always an important profit driver but even more so when determining the success of a merger or acquisition. If you get prices, discounting, terms & conditions wrong, then most likely you are losing millions if not billions. If on the other hand you reap the pricing synergies, considerable (and often additional) profits are to be made in M&A from price optimization and execution.

A well-executed pricing workstream in an acquisition includes the following areas:

1. Price Planning: get prices, discount structures, terms & conditions well-planned as early as possible. In some industries the prices can only be changed with long notices or annually, thus you may lose an opportunity if not planned in advance.
2. Pricing Strategy: set a strategy for how pricing, discounting, terms & conditions should work for the combined business, post-acquisition. Plan for how to reap pricing synergies (with possible legal constraints).
3. Terms & conditions: the new combined business will in all likelihood need to offer one single set of terms & conditions, instead of the two separate ones before the acquisition. The devil is here in the details, as some customers may benefit while other will suffer from this harmonization, and thus you need to be able to handle both situations. 
4. Training of sales teams: post-acquisition it is likely that your sales teams will be selling the combined portfolio of products or services. So there will be a lot of unfamiliar offerings to suddenly promote now. In some cases they might even have now to say nice things about something which they used to deride as a competitor in the past. Therefore, it is key to train the sales teams in value argumentation for the combined portfolio. Equally, they must be trained in how to sell the merger itself: how to prevent customers from exploiting harmonization of terms or reducing their engagement with the New Company, in order to get better prices/terms post merger.
5. Internal Communication: there are many stakeholders in M&A, and across various workstreams it is of course paramount to communicate well. This certainly also applies to pricing, where people who have influence over pricing (e.g. Marketing & Sales) in NewCo must be on board with the strategy and the execution plan. Sales often being the spearhead with the customers in M&A must in particular be well-equipped to defend the merged product portfolio, its prices, terms & conditions.
6. External Communication: At the end of the day, the success of pricing in an acquisition phase rides with the customers' acceptance of new prices, discount structures, rebate systems, terms & conditions. Therefore, it is key to plan an execute detailed communication to each customer, "sell" the merger and make sure to sell the combined portfolio. There is no longer "us and them", there is only "we". Communication needs to reflect that.
7. Roll-out management of everything to do with pricing: communication with each key account, monitoring of performance, negotiation support, etc. While planning and strategy are important, the actual execution is equally important for the pricing success. In industries such as FMCG / CPG, where often a handful of key accounts make up more than half of the market, it is necessary to make detailed account by account action plans for how convince them of the new prices, discounts and rebates.

Get in touch with us if you want to learn more or discuss your specific needs about pricing in M&A.

Revenue Control systems (see e.g. https://blog.stratinis.com/revenue-control-continuous-incremental-profit-improvements) are very efficient ways of improving pocket prices and thus profitability in most B2B industries. But as with most things in business, it is important to not only introduce a new system but also getting the people on board. When it comes to revenue control systems, the sales people are often the most important ones to get on board.

Some tips to remember when implementing revenue control with the sales team:

• Demonstrate how the system is easy to use and often gives them better information about their customers and deals
• Ensure that the process doesn't take longer than today, nor takes so much time to get approval that deals are lost. Ideally, use the revenue control system to speed things up so sales people feel they can close faster.
• Equip the sales team with value arguments and negotiation techniques, so they feel comfortable presenting prices and increases to the customers.
• While some parts of the revenue control system might feel like a black box, generally communicate as much as possible internally (externally is a different matter)
• Repeat internally that revenue control helps improve profitability and is for the good of the company
• Train, train, train in value selling and value argumentation
• Differentiate approval workflows so only those prices that really need it (i.e. they are low) go through elaborate approval. Good prices (read: high) should be auto-approved with a minimum impact on time and effort.

We have helped customers in a variety of industries implement revenue control systems and generally see payback in less than 3 months. Get in touch and learn how we can help your company.

Interesting articles about E-Commerce today:

• PriceBeam: https://blog.pricebeam.com/ecommerce-pricing-the-ultimate-guide-to-winning-the-pricing-game 
• Stratinis: https://blog.stratinis.com/pricing-software-in-ecommerce 

At RevBeam we help E-Commerce companies set up their pricing process and data flows, so that they can optimize prices continously while minimizing manual work. What we have helped companies with in the past:

• Price Optimization models
• Continuous dynamic pricing models to update prices frequently
• KPI design and analytics
• Data design 
• Software implementation
• Organizational considerations
• and much more...

Get in touch and we would be happy to hold a meeting about how we can add value to your E-Commerce business.

Whether you are creating, growing or just managing a pricing department, there are several things to consider to make it successful. Below some items from our own experiences when working with pricing teams and observing which ones seem to do better.

1. Executive support: with support and understanding from top management that pricing is not only important but also a strategic differentiator, many pricing teams are working in vain. You need sponsorship and support from the C-suite.
2. People: as with most things in business, good people make a difference. So recruiting the right people is naturally key. But also important in larger organizations is that people see the pricing team as a good career step: in other words, where do people go after the pricing team? If working in pricing is seen as a good step to learn sales/marketing/finance with good career prospects then so much the better.
3. Structure: One of the key things when designing the pricing department is where you put responsibilities:
   • Global: responsibilities for prices are places with a global team who need to be asked whenever local prices need changing.
   • Local: most pricing responsibility is with the local teams
   • Hybrid: some pricing responsibilities are global, such as setting global pricing guidelines/floor prices/target prices, as well as making pricing trainings and value argumentation. Other responsibilities, typically around discounting and rebate agreements are placed locally, though often restrictions from the global pricing guidelines.
4. Training: closely related to the people aspect: make sure to train the team on techniques, pricing strategy etc, but very importantly also how to communicate and train other people (their colleagues in various departments) in how to do value pricing.
5. Organizational empowerment and influence: Without the power and organizational ability to change or approve pricing matters impacting other departments, the pricing team very often just becomes a business intelligence department, and while analytics are important, it is not what moves the profit needle when it comes to pricing. Succesful pricing organizations are consulted or even have veto powers over some pricing KPIs (so they become needed by Sales & Marketing) and are part of setting overall revenue and business strategy, such as what revenue streams to pursue, what kind of pricing position to take, how to fix brand health issues etc.
6. Tools: the most successful teams have a plethora of tools at their disposal from pricing software to collaboration tools, analytical tools, training tools and more.

 At RevBeam we help companies build and improve their pricing and one aspect is how the pricing teams are structured and developed. Contact usto learn more.

According to several studies in B2B (whose customers may sell to consumers in the end) the difference between the list price and pocket price, after all discounts and rebates, is between 20% and 50%. In other words, it is "industry practice" to give discounts and rebates worth 20 to 50% of the gross revenue. While it sounds high, it might not in itself be a problem, as it is typically the net net price that is used as KPI, both to drive profits but also to push price increases through on. In simple terms: it is not in itself a problem if the gross price is 200 and the pocket price is 100, as it is the 100 that both buyer and seller consider and use in their business endavours. But what IS a problem is when all of those discounts and rebates are provided without getting anything, or little, in return. There is where a Business Driver framework can be useful as well as highly profitable.

A Business Driver framework means having an (internal) framework for how to classify and measure discounts according to what they give in return. It is simplest to explain by illustrating it (thanks to our partners at Stratinis for this illustration from their price management software):

In the above example, each discount given from the seller to the customer is classified according to its purpose, in addition to whatever general P&L classification that discounts sits under in the P&L/chart of accounts. In other words, ERP and the finance department may have their own P&L classification, but for the sales/marketing/pricing team, the business driver classification is an additional way of looking at all customer monies.

Steps in setting up a business driver hierarchy involve:

1. Creating the overall classification framework. This can typically be done in 2-4 weeks depending on the complexity of the business and the current sales.
2. Classifying all discounts according to the framework. Using Pricing Management Software it can be automated, otherwise you risk it becoming a burden on the sales team, and thus meet a lot of resitance
3. Evaluate what type of business drivers you spend on. Make actions on what to change
4. Enhance the framework by adding pre-contract obligations on your sales force to make a good business case for the discounts they intend to give during customer negotiations..

Steps 1-3 can be done without burdening the sales force too much. But the mere presence of such a framework and internal communication about, will start changing certain discount behaviours. In a previous case we saw how a company reduced their "Other" category discounts from 30% to 20% over 12 months, simply by making the negotiation teams aware of getting something in return. Steps 1-3 can it itself improve discounts by 2-4% of net sales in larger, complex businesses.

Implementation of Step 4 can also improve net sales but is a much longer process with heavy involvement of the sales department. Therefore many companies choose to pick the much more accessible fruits in steps 1-3 first.

Get in touch with RevBeam and learn about how we have helped companies set up Business Driver frameworks and improved profitability as a result.

Good points in Stratinis' blog post about revenue control and workflows: https://blog.stratinis.com/revenue-control-sales-friendly-approval

At RevBeam we have worked with several companies to set up their revenue control processes. It certainly is key to keep internal track of the Time-To-Approval KPI and generally try to reduce it as much as possible. It helps commercially with the customers, but also helps with the buy-in from the sales team to feel that revenue control and approval process is speedy and not hindering the sales process.