The Pricing Reality: Debunking 8 Myths
Pricing complexity has skyrocketed over the past few years, and it’s not always clear where you should turn for help. Should you use AI or BI? Pricing software or pricing consultants?
To discover what’s best for your business, it’s important to clear up a few misconceptions to get to the truth. Here are some common myths I hear and what you need to know to drive sales and revenues and maintain profitability.
MYTH #1: “We use a consulting firm to help us manage pricing, so we don’t need pricing software.
TRUTH: If you don’t have the in-house resources, consultants can help you tap into high-level theory to think through the vision for your business, such as how to tackle a new market, grow in a new region, or adapt a brand or private label.
However, the only way to execute your vision is with pricing software simply because the pricing challenge has become so much more complex. To be successful in a far more complex business environment, you must not only manage a bewildering number of pricing points, but also deliver the right price, at the right time, in the right channel, for every sales engagement. Only pricing software can provide that kind of power—and you’ll see why as we dig into the next myth.
MYTH #2: “Our consultants built awesome spreadsheets for us, so we have our pricing under control.”
TRUTH: Without pricing software, the pricing output from any human—even the best and brightest consultant—is only applicable at the time you receive it; in other words, it’s one-time pricing not dynamic pricing. Every time there’s a change to costs, taxes, competitor prices, you name it, you must re-engage the consultant to update your pricing. Every time you want to expand into a new sales channel, you must re-engage the consultant to deliver appropriate pricing for that channel.
It becomes one long, very expensive series of engagements.
This approach of relying on price execution spreadsheets also leaves potentially billions of dollars in profit on the table as you’ll see in the simple math illustration below, which has proven to be eye-opening to business leaders once they understand the difference between national-level versus customer and product/SKU-level pricing.
MYTH #3: “We use consultants to help us provide the right price recommendation for our products, so we don’t need pricing software.”
TRUTH: It’s important to understand that consultants are creating pricing at the broad national level, not at the granular customer and product/SKU level, which is where all the profit potential is hiding. If you’re only addressing pricing at the national level, you’re leaving 200-500 basis points of margin on the table across all customer and SKU combinations. That’s why so many top-tier companies quit doing national-level pricing a decade ago.
It’s impossible to effectively manage pricing in a table, and here’s why.
Let’s say you have 15,000 customers and 25,000 SKUs serving two sales channels: a sales rep selling direct to customers and an online channel. That comes to 7.5 million different price points that you need to address every day if you’re going to effectively manage pricing.
Or let’s say you have 15,000 customers and 225,000 SKUs. That comes to 6.75 billion price combinations that you need to manage. Add the volatility in both cost and customer willingness to pay and a pricer could be trying to adjust hundreds of thousands of prices each and every day.
While there are a million rows in Excel, realistically you can use about 400,000 rows.
That means if you must create 6.7 billion price combinations, you will need over 16,000 Excel workbooks to update pricing. And that’s just for one price update.
If you get a cost change across 5,000 SKUs, you’ll need 750 Excel workbooks.
Add in a reseller channel and that creeps up to 10.1 billion price points.
At PROS, we have customers with over 700,000 SKUs and 150,000 customers. That’s 315 billion price combinations. That comes to 1.5 million Excel files if you want to price at a granular level without pricing software.
As a result, many businesses settle for fewer workbooks and perhaps divide a country into regions so you might end up with four price points for your product.
However, four price points for your product is unacceptable today. Not only do you have this behemoth of a spreadsheet that a team of consultants has to maintain because no one at your company knows how to execute it, you’re only keeping your pricing semi-active, which means you’re leaving serious money on the table over the life of these products.
Once businesses switch to the PROS platform and the power of our real-time pricing engine and AI, things change quickly.
For example, one distributor gained $74 million in revenue after switching to the PROS AI-powered platform.
MYTH #4: “Pricing software is for large enterprises, but that’s not something we need since we’re a small business.”
TRUTH: Whether you’re a big manufacturer or small mom and shop distributor, all businesses are facing similar challenges like cost fluctuations, rebate complexity, and deviations in margin leakage. Even the smallest distributor still has millions of price points to consider, as I illustrated above. For example, if you only have 1,000 SKUs and 5,000 customers, that’s still 5 million price combinations that you need to manage every day.
What’s more, all businesses today have the same challenges of providing a fast and efficient experience that customers demand. Most buyers expect the same buying experience they receive in the B2C world, and that requires real-time pricing and across multiple channels like eCommerce.
MYTH #5: “Our consultants are helping us manage pricing much better than we were.”
TRUTH: Consultants can help you fix a gap you have today in your pricing, but it’s only a short-term fix because the marketplace is always changing. In other words, pricing is not a destination, it’s a journey. Consultants will help you set up a go-to-market (GTM) strategy, but there are two major issues once developed and deployed. First, you will need to continue their expensive billable hourly rate to keep up with the constant changes and fluctuations in the marketplace. Second, the moment anyone extracts data from BI tools, ERPs, etc. to calculate new price books, the data becomes stale. By the time all calculations are complete and re-uploaded, driving inefficiencies and risk of error, it will be time to start all over again. A pricing platform can help you move forward through the stages of pricing maturity, no matter where you are in your journey. That’s important because every incremental improvement can create tremendous advantages and help you become more competitive.
Where are you on your pricing journey?
MYTH #6: “We use BI tools to help us manage pricing, so we have the pricing capabilities we need.”
TRUTH: BI tools provide businesses analytics, which might help you figure out historically where you left money on the table. But BI tools aren’t price management, price execution, or price delivery. BI tools can’t help you proactively manage your business today to make sure you’re staying relevant and that your pricing is maximizing every single selling transaction.
Myth #7: “AI is going to replace me and take over my job.”
TRUTH: With AI, businesses have access to powerful tools that can revolutionize their profit optimization strategies while enabling employees to work more efficiently and strategically. In fact, one of our customers said: “PROS has enabled the first fully automated, AI-based system that we have in the entire company. It’s fully AI, pulls in competitive information, does science, and looks at the strategy and the plays we are calling. It determines prices that can flow through our ERP and other systems if nobody touches it. So, we’ve had massive productivity and added an 8X return on investment.”
At PROS, we’ve seen many instances of AI increasing productivity. Tasks that would have taken hours or even days are reduced to minutes. This new level of productivity frees up teams to work on priorities that they previously didn’t have time for, and it allows teams to grow and hire more pricing professionals to expand their organization. Also, we frequently see that many people who are PROS champions within their organization often receive promotions from the success they achieve by using our software.
Myth #8: “Pricing software is too expensive.”
TRUTH: PROS solutions are proven to drive profitable growth and the software typically pays for itself in a few months. Here are a few statistics: The time to value is less than 3 months and sometimes in as little as 2 weeks. The time to payout is less than 6 months and sometimes in just weeks or days. The average margin improvement is +200 basis points and as high as +500 basis points. And the average revenue lift is 8% or as high as 100%. You can check out more details in this ROI study.
In another study conducted by Forrester, PROS solutions delivered 400% ROI.
Pricing reality check
Pricing at the customer/product/SKU level is like trying to live on Mars. It’s really hard.
That’s why pricing leaders can no longer use traditional pricing tools and spreadsheets to manage and deliver a multitude of price points. It is nearly impossible to try and calculate the win-rate and price optimized sell price at any level and impossible at the customer/SKU level.
On the other hand, PROS AI-powered price optimization and management capabilities allow pricing leaders to deliver tailored, market-relevant prices in real time to sales teams, eCommerce platforms, partners, and customers with ease.
Our solutions ensure personalized buying experiences for shoppers across all channels, with pricing science that understands every buyer’s willingness to pay.
So, whether your go-to-market strategy is willingness-to-pay, cost-plus, or inventory lifecycle management, we have algorithms and a user interface (UI) that makes managing and executing price lists easy, fast, and accurate. Evolving your GTM to value-based pricing, you can leverage our AI that will optimize revenue and profit for all of these scenarios.
And it’s easier to use than managing hundreds of Excel files.
The PROS AI-powered platform is so powerful yet simple to use that a junior pricing analyst can execute a billion price combinations in a matter of minutes—and no Excel formula-building skills required.
Learn more:
- Discover how B2B companies are overcoming the “sheet show” and reclaiming hidden profits. Read their success stories.
- Curious about the potential impact PROS could have on your business? Take the interactive product tour.