Cracking the Code: The Power of Pricing Software for Better Business Decisions

Part I / II of our series "From Chaos to Clarity: Transforming Your Business with Pricing Software" by Dr. Marcus F. Demmelmair and Kilian L. Fleisch

It is important to understand that pricing decisions are not only complicated but also complex, meaning that there are not only many unknown factors but also a vast number of interrelations, which prevent you from reducing the problem to a simple equation. Pricing software, however, can help in this regard, by allowing companies to combine multiple sources of information to determine the right pricing decisions considering different market, competitive, product or customer related contexts.

A pricing software can cover various dimensions of pricing decisions, including:

• Management: Providing a centralized platform to administer pricing across multiple systems, channels, products, customers, and regions.
• Analytics: Providing insights and analytics on trends, customer behavior, crawled competitive prices and sales performance.
• Simulation: Simulating the impact of pricing changes on revenue, profit, and other key metrics to inform pricing decisions.
• Optimization: Optimizing prices based on factors such as demand, competition, and customer behavior using advanced algorithms.
• Compliance: Ensuring compliance with pricing policies and regulations, including transparency and anti-trust laws.
• Documentation: Previous pricing decisions are documented and can be easily traced back.

Utilizing pricing software enables companies to make faster, data-driven pricing decisions. By leveraging advanced analytics, simulations, and optimization techniques, businesses can make informed pricing decisions quickly. Integrated pricing software solutions enable global price changes and adjustments to be made in seconds, providing a significant competitive advantage in today's volatile market. According to Gartner and confirmed by Horváth project experience, implementing pricing software can deliver a rapid return on investment, with typical revenue increases of up to 5% and margin increases of up to 10%. As a result, the provider world is responding to this potential with a growing number of solutions.

How to Choose the Right Pricing Software for Your Business

In the preceding section, we explored the various dimensions of pricing software and discovered the abundance of solutions available in the market. This raises the question: which software is best suited for our specific business needs?

Just like a newborn baby, companies need to crawl before they can walk, jog, or sprint towards pricing excellence. Therefore, leveraging specific pricing instruments such as competitor benchmarking, white-spot analysis, product bundle optimization, or discount recommender can help companies gain additional insights. These tools, known as "AI-based Pricing Engines" at Horváth, can improve profits by 2-8% by addressing just one of these dimensions. This approach allows organizations to acquire experience and establish the necessary skills required to climb the pricing maturity ladder. While these tools have significant benefits for acclimatizing organizations to the use of analytics in pricing, they are not fully integrated into IT landscapes and are typically used as standalone solutions for specific use-cases. So, which software is the right fit for our business?

Determining the ideal pricing software from a system perspective can be challenging. Therefore, we categorize the various software solutions into three groups of pricing software providers.

1. Pure-Play Pricing Software Providers: ?These are companies that specialize in developing software solely for the purpose of pricing optimization. Their software is often feature-rich and comprehensive, allowing businesses to manage and optimize their pricing strategies using a range of sophisticated tools and algorithms. Examples of Pure-Play Pricing Software providers include PROS, price fx, Vendavo, and Zilliant.
2. Pricing Software Stacks that can be integrated into existing enterprise solutions such as SAP ERP or MS Dynamics. They are designed to add pricing optimization functionality to these platforms, making it easier for businesses to manage their pricing strategies without having to switch to a completely new system. Examples of Pricing Software Stacks include Vistex, and SFDC Einstein.
3. SaaS Analytics-based Pricing Optimization Solutions: These are SaaS-based (Software-as-a-Service) solutions that use machine learning and algorithms to analyze market trends, competitor prices, and customer behavior to identify optimal pricing points. These tools often include features such as dynamic pricing, price optimization, and price sensitivity analysis. They are typically offered as cloud-based solutions, making them accessible to businesses of all sizes. Examples of analytics-based pricing optimization solutions include 7Learnings and Omnia.

The following factors determine the category of pricing software or analytics tool that best suits your needs: the number of products, transactions, price changes, company size, industry and technical ERP and CRM landscape. If your business has a high level of complexity in terms of these factors, a pricing software stack is more likely to be suitable. On the other hand, if your business has low complexity, a SaaS or pure player solution may be a better choice.

Shedding light on the typical confusion around existing enterprise solutions and their function around pricing: ERP, CRM, Webshops, and CPQ systems can manage pricing, but their primary functions are to provide an overview of business operations, manage customer relationships, enable online transactions, and streamline the sales process. On the other hand, the three types of specific pricing software are designed to support the complete pricing lifecycle, including analytics, simulation, optimization, workflows, and compliance, using advanced algorithms and machine learning to make data-driven pricing decisions.

In conclusion, the decision to implement a fully-fledged pricing software or a specialized one-dimensional tool depends on the maturity of your pricing organization, market environment, and predominant business model. However, every business can benefit significantly from implementing a pricing tool to prepare for the next step in their pricing journey.

Stay tuned for part III !