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Why Now is the Time for Price Optimization

Published Date

While many B2B leaders grapple with margin decline, revenue leakage, and reporting challenges, their more commercially focused peers are turning their companies into real-time profit machines. How? With price optimization software.

Price optimization is a technology that uses data analysis and algorithms to determine the most profitable price point for a product or service, considering factors like market demand, customer behavior, competitor pricing, and production costs. The aim is to maximize revenue or margin for the business while maintaining customer satisfaction by dynamically adjusting prices based on various conditions.

5 Reasons Why Price Optimization is Now a Must-Have

  • Digitalization is intensifying price pressure. This is due to increased demand for price transparency, low-cost entrants, and increased customer negotiation power. 
  • There’s a proliferation of sales channels and buyer touchpoints. Pricing leaders in B2B enterprises must employ new and better ways of realizing their price strategies effectively. 
  • Costs fluctuate and demand is highly volatile. Pricing decisions made last year, or even last week, are no longer applicable and could be leaking margin and profit. 
  • Customer expectations have changed. They expect their B2B buying interactions to mirror today’s fast and easy B2C experiences. In fact, 90% of B2B buyers desire personalized pricing and recommendation, and 52% of B2B buyers would pay a premium for an instant price. 
  • Economic fluctuations are ongoing. Businesses need to adjust prices quickly to maintain profitability and competitiveness amid the volatility. 

Price Optimization Software

Manual Pricing Processes and Spreadsheets Can’t Keep Up

Managing the complexity and speed needed for successful pricing strategies requires sophisticated tech capabilities. Yet many companies still rely on price-setting and execution processes that are surprisingly manual. These processes can’t deliver fast, frequent, and granular price adjustments that today’s market demands. It’s impossible to manage inflation, rising costs, and supply chain issues with static pricing systems. Your pricing strategies will be reactive no matter how quickly you execute an update. For example, if it takes three weeks to update prices and raw material costs shift rapidly, then prices aren’t reflecting what’s going on in the supply chain, opening the door for revenue leakage. 

Companies that have sophisticated price optimization and management software in place can make well-informed decisions in a timely manner, enabling them to outperform businesses still relying on Excel-based pricing methods that prevent them from quickly executing price changes. 

How 2 Technologies Have Transformed Price Optimization

Cloud-Based Computing offers benefits like scalability, flexibility, and cost-efficiency. With cloud-based solutions, businesses can process large datasets and run complex algorithms without the need for extensive on-prem infrastructure. They can leverage real-time data to adjust prices based on demand and market conditions. And they can use all their business data combined with powerful analytics to gain insights into pricing strategies and customer behavior.

AI has significantly transformed the price optimization software landscape, making it more data-driven, dynamic, and customer-centric. With AI-powered price optimization, businesses can process vast amounts of data from a lot of different sources in real time, uncovering patterns and specific insights that pricing analysts might miss. They can achieve high personalization in pricing based on individual buyer preferences. And they can propose different price simulations with ease and at scale based on the desired business outcomes, such as maximize prices for margin or revenue objectives for eCommerce or help sales teams perform better for negotiated selling scenarios.

The Business Challenges Solved are Massive

Leading global businesses use price optimization software to solve these challenges. Is your business experiencing any of these problems?

Manual & Siloed Processes 

  • Slow and manual customer-specific price adjustments
  • Pricing inconsistencies and errors 
  • Long price change approvals 
  • Siloed pricing tools and lack of access to a centralized system of record for prices

Inability to Provide Real-time, Personalized Prices 

  • Inability to effectively incorporate external data in price strategies (such as demand, competitor prices, costs, inflation, currency exchange rates, commodity indices transactional history, inventory levels, customer information)
  • Lack of capabilities to tailor prices based on customers’ behavior and demand shifts 
  • Inability to provide market relevant prices on time due to long and complex price (re)calculations 
  • Limitations due to data sparsity (and lack of insights for unique selling scenarios)

Visibility & Scalability

  • Inability to coordinate pricing across many different sales channels 
  • Difficulty handling increasing number of price requests 
  • Lack of visibility on key business aspects like sales and pricing performance and profitability, leading to margin and revenue leakage

The Advantages Delivered are Transformative

Enhanced Operational Efficiency

By streamlining pricing processes, automating repetitive tasks, and reducing manual efforts, price optimization software enables pricing teams to focus on strategic initiatives.

Key features that enable this:

  • A centralized pricing platform that provides a single source of truth
  • Streamlined price approval workflows that enable compliance and governance 
  • Integration with quoting and commerce platforms to deliver personalized, market-relevant prices directly to partners, sales, and buyers 

Real-world results: Before PROS, New-Zealand dairy company Fonterra, the largest company in the nation, relied on manual pricing processes, which led to limited visibility into how price changes affected profitability. After they implemented PROS Smart Price Optimization & Management software, they have a single, all-encompassing pricing solution that offers pricing guidance, automation, access to real-time commodities markets, and more. Now that Fonterra can update prices quickly, they are able to get quotes out faster. Plus, with AI-powered pricing, everything's more transparent, and the sales team really trusts the prices they are sending out to win the deal. Learn more.

Competitive Advantage 

Price optimization software provides businesses with strategic pricing which allows them to outperform competitors.

Key features that enable this:

  • Smart analytics for visibility into pricing and profitability to identify areas for improvement 
  • Real-time price calculations with sub-second response time and no interruption to the business 
  • Dynamic price recommendations that balance maximized profitability with customers’ willingness to pay
  • Transparency into the data by showing price change impact, attribute depth analysis, and peer-specific information

Real-world results: Before PROS, an office supply distributor, operating 1,000 stores in 60 countries as well as a huge digital marketplace, was facing declining revenue mainly due to poor pricing visibility and difficulty making sense of their data to set optimal prices.

With the AI-powered pricing capabilities of PROS Smart Price Optimization and Management solution, the company drove $74M in revenue uplift, reversing a 6-year trend. They also improved profitability and time-to-quote on over $1B in contract sales from over 8,000 fixed price customer agreements.

Future-Ready Businesses

Price optimization software gives businesses the capabilities they need to compete now and into the future.

Key features that enable this:

  • Omnichannel selling to harmonize prices across all channels, regions, products, and customers
  • Pricing for eCommerce portals making it easier for customers to find pricing that matches their budgets and place orders on the channels of their choice
  • AI and the power of neural network-based pricing to understand what’s driving a price recommendation and use elasticity to better predict win-rate probability—a must for businesses facing market volatility and disruptions 

Real-world results: Before PROS, Wilbur-Ellis, a San Francisco-based global leader in agriculture technology and products, was pricing manually which invited errors in pricing, bottlenecks in the sales process, and margin leakage. Now they use PROS Smart Price Optimization and Management leveraging PROS Gen IV AI, a new approach to price optimization that uses neural networks rather than traditional micro-segmentation to predict pricing. The neural network provides better price prediction, enabling them to stay ahead of inflation. Learn more.

Explore the Exciting Possibilities of Price Optimization

Price optimization is about knowing what the right price is based on all the different features and characteristics of a sale, so businesses can capture more business and increase margin. By knowing what really matters for each sale, customer, and purchasing moment, organizations can maximize profitability, enhance competitiveness, improve customer satisfaction, and increase market share.

Learn how the PROS Smart Price Optimization and Management solution can help you stay ahead of the competition and drive profitability. Contact us today.