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Learn the 8 Do’s and Don'ts of Pricing Strategies

Digital commerce is a whole new game than it was 2 years ago. And it’s going to get a lot harder from here on out if businesses still rely on disjointed, manual processes that leave money on the table and lead to lost profits. Further, the compounding effects of diminishing profits inhibit your ability to re-invest in innovation that differentiates your products. It’s time for companies to look to transform digitally: look to tools and technology to drive their business goals of tomorrow.

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In regards to digital transformation, PROS believes that pricing is the best place to start. Smart competitors today are moving past manual pricing processes, best guesses, and layers of approvals that contribute to ineffective pricing and delay quoting. When 53% of the buying decision is based on the sales experience, businesses can’t afford pricing processes that are doing more harm than good.

So, what’s the key to a winning pricing strategy in the digital age? If you’re ready to drive performance, follow these do’s and don’ts of pricing strategies.

DON’T Succumb to Pressure to Reduce Price.

There is more and more pressure on businesses to reduce price due to stronger competition with low-cost providers, customers’ greater negotiating power and a higher level of price transparency due to increasing digitalization.

But companies need not give in because it turns out that pricing isn’t the top factor. Although customers prefer lower prices, price is typically a secondary consideration in most purchase decisions. Customers do expect prices to be both fair and in the ballpark of what other competitive vendors are charging. But, other concerns like, quality, service, selection, availability, ease of doing business, reputation, trust, and support typically rise to the top when customers make their decisions on with whom they will do business.

DO learn what drives variation in willingness-to-pay.

Rather than succumb to pricing pressure, it’s important to understand what types of customers and buying conditions drive different perceptions of value in your product set. When you understand this, you can leverage pricing strategies to ensure you have the market-rational price for every interaction. Fighting the traditions of over-discounting and gut instinct in this way can help you recover 100-300 basis points in margin.

Use tools and research to understand willingness to pay—which is the maximum price at or below which a consumer will definitely buy a product.

DON’T Just Set It and Forget It.

According to a Hanover Research study, 54% of vendors say that price and competition are the reason they lose deals. Digitization has increased price transparency across both B2C and B2B markets, making it harder than ever to maintain competitive pricing. Pricing must be revisited continually since market conditions change constantly. And in addition, you need to always refine pricing strategies and recommendations.

And use dynamic pricing tools: with the volume of information that you need to account for in your pricing accelerating so rapidly, it’s virtually impossible to make accurate and timely adjustments with manual processes. The only way to do this is with automation and machine learning, so that every price recommendation reflects the latest market and sales information.

DON’T Use Traditional Manual Quoting Methods.

Traditional sales cycles rack up a large portion of time just trying to get approvals—not to mention the time it takes to generate a quote with manual methods like excel spreadsheets when you have dozens, even thousands, of line items. But businesses lose sales when it takes too long to return quotes. A vendor that is slow to quote may just miss the race altogether. That was the case for a large enterprise technology company, whose processes were so complicated, confusing, and slow that many partners were passing on quoting their products altogether. Automatic pricing tools such as PROS Price Optimization and Management are required.

DO deliver pre-approved prices to partners and sales.

Furthermore, a deep-dive review of their pricing showed there was a lot more variance in realized pricing than they anticipated, along with many unprofitable deals. Once this company implemented data-driven pricing, with auto-approval of routine deals, they accelerated quote turnaround time, which resulted in 12,000 new partners, a 111% increase in quotes, $1 billion in incremental revenue and a 200 basis point margin improvement.

DON’T Sacrifice Margins with Reactive Pricing.

Weak pricing strategies, like just increasing all prices by a certain percentage across the board and across customers sabotage profitability. In fact, a study by Simon-Kucher & Partners' pricing article found that the estimated cost of price weakness is 70 basis points. Rather than reactive, knee-jerk pricing that can lead to over-discounting, smarter pricing enables businesses to remove the guesswork and understand their true revenue and growth potential.

DO gain a competitive advantage through the power of AI.

By optimizing pricing with the power of AI, businesses are empowered to gain competitive advantage by maximizing their profit potential.

Machine learning (ML) and Artificial Intelligence (AI) consume, evaluate, and extract insight from market and customer data. Broadening the use of AI tools to evaluate the overall markets more fully for customers, and to understand buying behavior more deeply, will enable you to deliver a more agile, better informed, and more intelligent selling process tailored for every customer.

Most importantly, AI will continue to learn over time, optimizing every step to improve and optimize customer experience and revenue growth. The digital transformation of the pricing process must begin with a foundation of AI-powered insight, to take into consideration all marketing factors in developing pricing, real-time, to deliver the right price at the right time to the customers.

The true promise of AI is to reimagine how data is used within the digital transformation of businesses, and especially with the transformation of the overall pricing process.

PROS Smart Pricing Optimization and Management

PROS Smart Price Optimization and Management is an AI-based SaaS solution that accelerates pricing processes while increasing margins and protecting price attainment. Built on a flexible hybrid architecture, the powerful price optimization and management software drives hassle-free execution at scale, adding precision and excellence to pricing practices and increasing sales win rates.

Designed for superior omnichannel selling in highly competitive environments, real-time pricing incorporates the latest market information, delivering informed, dynamic, personalized pricing decisions to buyers across traditional and digital channels in milliseconds. Centralized management makes it easy to gain consistency and visibility by taking control of product offers per channel, eliminating the likelihood of channel conflicts.

Smart analytics and reporting tools accelerate alignment with C-level executives and key stakeholders and enable complete transparency over business performance. With PROS Smart Price Optimization and Management, businesses gain prescriptive insights into sales opportunities at both aggregate and granular levels, uncover data outliers and revenue and margin leakages, and understand customer value and willingness to pay, to empower sales teams with the right pricing guidance.

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About the Author

Brooke Falbo, Product Marketing Manager at PROS, leads the go-to-market strategy for PROS Smart Price Optimization and Management solution. Brooke has a passion for technology and learning and is a results driven marketer with more than 10 years of experience across the B2B software industry.

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