With the fast pace of digital transformation affecting organizations across the globe, manufacturing companies are finding it more difficult to meet growth targets using current sales processes. Increased price transparency and the speed of business — brought on by a shift to modern commerce — are affecting revenues.
Historically, many companies have used a one-size-fits-all approach to pricing: setting a single price and then discounting that price based on sales needs and customer negotiations to win the deal. This approach sets a price for everyone and often results in a price that works for no one. These blanket pricing strategies overlook a number of important factors, including customer price sensitivity, quote timeliness, and major discrepancies between the list price and go-to-market price.
To more closely examine the obstacles of a one-size-fits-all approach, let’s consider an example. Say a manufacturer prices an automated lift at $1,000. While the one-size-fits-all price may be $1,000, it’s likely sold to one customer segment for $900, another segment for $750 and yet another for $620. This pricing approach means that the blanket price doesn’t work for everyone, and almost every deal requires some level of negotiation and approval before it can be offered to the customer. The end result of a one-size-fits-all pricing strategy is a constant cat-and-mouse game between the sales and pricing departments over the list price and the go-to-market price, with the risk of losing business.
Today’s customers demand timely responses and have little patience for delayed internal approvals. In fact, a study conducted by Forrester Research reveals that 38 percent of sales leads find the pricing approval process to be too time-consuming. Furthermore, a study by Hanover Research found that the primary obstacle to finalizing quotes, specifically in the automotive and manufacturing industry, is internal negotiation related to price or deal parameters. Without a strategic shift in pricing strategy, manufacturers could easily find themselves in danger of missing revenue targets and risking increased customer dissatisfaction.
Modern commerce is the critical sell-side component of digital transformation that most industries are experiencing today. It helps overcome the challenges of outdated, status quo sales processes by establishing a frictionless buying experience that delivers personalized offers across all channels and in real time. Manufacturers can, and should, take advantage of the tools available in today’s era of modern commerce to stabilize win rates across all deal sizes by using accurate, targeted pricing to control variability and excessive discounting. Below are four steps all manufacturing sales leads should consider if they want to optimize their pricing strategy:
- Focus pricing analysis on your most important deals: If your current pricing system results in more than 70 percent of quotes requiring approvals by your pricing department, consider moving smaller deals out of your pricing department’s queue. You’ll expedite the process and free up the sales team’s time to analyze what matters most. Implementing pricing optimization technology will provide deep, rich analysis on priority deals, without getting tied up in the necessary and time-consuming administrative work.
- Empower your sales team to make decisions on small and medium deals: The best way to free your pricing department to focus on the most important deals is to empower them to move quickly through small and medium-sized deals. The goal is to give your sales team enough leeway to negotiate 80 to 90 percent of their deals without requiring approval from anyone other than the sales leader. To free-up time for your sales leader, consider empowering teams with the support of artificial intelligence. Science-backed recommendations that provide insights on each individual customer give sales teams autonomy, and management can rest assured that their recommendations are backed by intelligent insights.
- Look for opportunities to speed up your sales cycle: In today’s sales negotiations, customers want a quote that’s turned around quickly and is easy to understand. Hanover Research found that 78 percent of manufacturers that take two days or longer to turn a quote reported customer frustration with response times. When it takes days or weeks to respond to customers, it’s frustrating for the buyer and will likely affect the deal. Installing pricing optimization software will speed decision-making.
- Embed pricing seamlessly into the overall quoting experience: Integrating pricing optimization in your CRM system will reduce duplicate efforts. Pricing optimization technology allows you to segment your customer base to establish the right pricing range and deliver that pricing through the quoting tool.
Decision makers in the manufacturing industry can reduce discounting hassles by strategically setting prices based on a customer’s willingness to pay across every segment of their market. Pricing technology is a great way to provide customers with personalized and timely quotes. If underlying approval processes are inefficient, the benefits of pricing optimization technology won’t be fully realized. A data-driven, algorithmic pricing strategy, combined with efficient processes that are personalized for specific customer needs, will set up manufacturers for success. By adapting old pricing strategies to suit today’s modern commerce expectations, companies can increase customer loyalty and optimize the bottom line.
Kevin McCraw is Director of Strategic Consulting, Automotive and Industrial Manufacturing at PROS.