Manufacturers who use fact-based analysis to improve their pricing structures often become more agile in the industrial marketplace and find that pricing can be a reliable competitive advantage. Doug Fuehne, Vice-President of Professional Services for PROS, a business-to-business pricing software firm, recently spoke with Manufacturing Business Technology about the advantages of pricing effectively, misconceptions about pricing, and some of the technological tools out there to help manufacturers improve their pricing structure.
How good of a grasp do a lot of manufacturers have on the importance of pricing effectively?
We’re starting to see that manufacturers are realizing the importance of pricing effectively. According to the Gartner Group, third-party pricing software has only penetrated the manufacturing marketplace about 3 to 5 percent. I think that’s largely because, up until now, manufacturers haven’t really recognized the importance of pricing. I think the penetration statistic tells you a lot about how important they’ve view it until now. But manufacturers are starting to see the value these days. We’ve seen the highest pipeline we’ve ever had in the sales side, we’ve seen attendances at our conferences jump through the roof. That tells us that manufacturers are starting to realize how important this is.
What are some of the biggest misconceptions out there about pricing?
One of the things we try to do with our software is help move manufacturers from what we call anecdotal pricing to more (fact-based) pricing. We’ll hear misconceptions all the time from our manufacturing customers, whether it’s on the sales side or the category management side, sometimes even from the production side. Our customers typically have a lot more pricing leeway than they think they do. Our whole goal is to help our manufacturing customers move from what they think might be the rules of thumb, to real fact-based analysis with our tools.
What are some of the things manufacturers do to assess how well or how effectively they’re pricing?
Part of the service plan we offer is what we call our discovery and insight process, where we actually help companies that are considering pricing, whether it be software, or a new process change, or a new organization.. And we find it to be an extremely valuable offering, because a lot of people don’t even know where to start. Typically what we find is a company that says software won’t help them at all in pricing. What we continue to do is just educate manufacturing customers about the value that third parties are validating. Frankly, it’s a no-brainer for us to see a 1 to 2 percent revenue lift, which can drive pretty big impacts down to the bottom line. It’d be very strange to me if we didn’t find that in any one of our typical manufacturing customers. By observing and analyzing their data, pricing becomes a competitive advantage. Companies that jump on the pricing bandwagon early, even after the adoption skyrockets in their industry, still maintain a long-term, sustainable competitive advantage because of their initial focus on pricing, and they’re always keeping themselves two or three steps ahead of their competition. So that’s another thing that typically resonates in the marketplace - the ability to maintain and sustain a competitive advantage.
What are some of the benefits manufacturers receiving from using PROS software and processes?
When you look at a big ERP implementation that may have taken a company five or six years to implement, it might have made them a little gun shy on large-scale software projects. As a result, we have focused very hard on the time it takes to implement PROS software. We’ve designed our software to be able to be implemented quickly. The software is architected so that it can be integrated with the company’s existing data in under 30 days. It won’t be the final version, but the good news is that manufacturers will actually have a working piece of software that they can look at, and can analyze the data in any number of ways. Our software is designed to not only realize that value in the first 30 days, but to continue to harvest value for as many years as they want to keep using it. We often share real case studies or connect our new customers with existing clients who have seen value from PROS inside of this 30-day window to help alleviate any concerns there may be about the deployment time and costs.
What can your software specifically do to benefit manufacturers who implement it?
First and foremost, we help identify willingness to pay. The software helps manufacturers to better create peer groups of their customers that have similar willingness to pay. We typically find that there’s still a variance in willingness to pay, so one of the primary ways we help our customers is to bring their lower-performing customers up to a more optimum price within their segment. It’s a very painless way to increase revenue. Also, if some of our manufacturing customers offer numerous product lines, and if there’s another product line that might be a better fit for a particular customer, they can use our segmentation analysis to potentially recommend a lower-costing product that actually delivers more margin dollars to our manufacturing customers. In doing all this, it’s really helping our customers be agile in the marketplace.
Visit www.prospricing.com to learn more.
