With rapidly rising costs across raw materials, commodities, and services, inflation is at its highest point in 40 years. Under these conditions, pricing can be an incredibly impactful lever when trying to resolve profitability issues including improving margins. In fact, we have seen that a 1% uplift in price often yields a 9% uplift in operating profits. Leveraging a nuanced and dynamic pricing strategy is among the most important things your company should consider when looking to shrink margin loss and grow revenue.
The Top Pricing Challenges
In our experience, there are 2 major challenges business face today with profitable growth under volatile market conditions.
First: identifying the changing underlying conditions and rising costs. Market conditions like the inflation we experienced in 2022 bring a flurry of changes within days. With reactive manual processes, it can take months to even notice and quantify changing conditions, let alone make the changes, and during that delay margins can plummet.
Second: deciding the optimal response to a market change that optimizes all relevant variables together, including cost, margin, and revenue. For example, reacting to supply chain challenges by raising prices without considering customer willingness to pay may lead to disastrous loss in market share. On the other hand, by lowering prices immediately when costs reduce, you may be losing out on significant margin. How do you make the right decision that takes multiple strategies into account?
Identifying changes and responding by considering multiple perspectives—by looking at the market in different ways by simulating pricing scenarios -- are key to responding to the market conditions of today.
Meet PROS Unique Multiple Perspectives Platform Feature
By equipping your pricing teams to pivot your pricing strategy successfully and dynamically, you can quickly respond to market changes. The Multiple Perspectives capability within PROS Smart Price Optimization and Management solution enables this transformation.
Our new Multiple Perspectives capability can accelerate your ability to identify and respond to changes on the cost side, assess implications for price and revenue to recommend an optimized response, all in real time.
Consider a strategy that may work well during inflation – increasing prices in order to keep margins consistent. This may work well when costs are increasing, but when costs are decreasing, there may be a window of opportunity to optimize margins instead.
The key is to leverage the advantages of both approaches: price and margin optimization. As costs rise and fall rapidly, these two strategies may need to be played in tandem with one another for different products, and the criteria to use one or the other may depend on a nuanced understanding of market conditions and proactive identification of changing costs. It may even be necessary to simulate each of the different strategies to assess and compare different combinations. In other words, multiple perspectives need to be considered, simulated, and harmonized with each other to arrive at the perfect price. This is where the PROS Multiple Perspectives capability comes in.
Essentially, Multiple Perspectives is a launchpad for pricing and commercial teams to deliver an optimized price point to customers every single time. With intuitive, user friendly and self-service functionality, Multiple Perspectives can help accelerate profitable growth by:
- Providing the ability to better simulate pricing scenarios and view the impact of multiple perspectives before activating.
- Allowing users to apply different sets of attributes, configurations, or even new PROS science modules to different business units or under different conditions.
- Enable users to optimize all sides of the margin equation by leveraging AI for both margin and revenue.
How One Client Used Multiple Perspectives to Boost Their Profitability
During a recent implementation of our Smart Price Optimization and Management, we leveraged the Multiple Perspectives capability to optimize our customers’ profitability through combining two AI-based approaches simultaneously – price optimization and margin optimization, based on continuous tracking and forecasting of costs.
Using Multiple Perspectives, our customer was able to optimize both sides of the margin equation—prices and costs—thereby applying margin optimization and revenue optimization simultaneously. They leveraged price optimization to keep prices high when their costs went down and margin optimization to keep margins consistent when their costs go up. The company is now able to provide its sales team with price, cost, and margin optimized pricing at both customer-ship-to and customer-sold-to levels. In other words, they are optimizing and responding to all sides of the margin equation.
After using the Multiple Perspectives capability within Smart Price Optimization and Management, our customer has been able to eliminate margin leakage by ensuring their pricing is more responsive to market changes. Ultimately, the company generated almost $1 billion in sales by pricing exactly at the target recommendation. (This figure represents where price guidance is being used, or about 20% of their total business.) This means that—for the first time since the inception of the company 150 years ago—they are increasing margins during inflationary times. Whereas they had forecasted a 50-basis point margin decrease, they instead have seen a 120-point growth.
Is it Time to Pivot Your Pricing Solution?
If you are struggling with optimizing your profit and margin, then the time has come to scrutinize the capability of your pricing solution. If you’re ready to implement a pricing strategy that’s transparent, fact-based, and optimized to win business, then our Smart Price Optimization and Management solution is for you.
With the PROS Platform, you’ll have a purpose-built price management solution, a machine-learning algorithm, and real-time price calculation to provide you with a single source of pricing truth for omnichannel harmonization, allowing you to deliver an exceptional customer experience.
Ready to learn more? Request a demo today to understand the impact analysis of various pricing scenarios, segment customers, identify product sales opportunities and warning signs of customer attrition, enable enterprise price management, and more.