Setting intelligent prices is an art and a science (and you need both)

Can you make an artist produce great art faster? Apparently, you can: hundreds of Venice, Rome, and London landscape paintings in 1700s by a venetian painter Canaletto and his students were enabled by the latest technology. These artists used an early version of a camera lens (camera obscura) to project a landscape on a canvas and paint over it. They would refine the colors, detail, light effects, or even composition to their preference. While the outcome was entirely each painter’s creation, leveraging the available tools sped up the process, improved the quality of detail, and allowed for more repeatable results, less dependent on individual capabilities of each artist.

Sitting at the intersection of sales, marketing and finance, the pricing function continuously tries to solve problems that seem mysterious to external audiences: is choosing the right price a brilliant bet or a math problem? Industry leaders’ experience suggests it is both, approaching pricing as a mix of art and science. In the current market environment, the uncertainty of future results requires higher maturity levels of making fast, accurate pricing decisions to continue capturing value created by the business.

Prices in the B2B context are typically negotiated to reflect the split of ‘value capture’ between the contracting parties. Maintaining customer satisfaction to repeat their purchases and constantly winning good deals is absolutely an art. Ability to do this accurately, fast, and at scale requires support of pricing science.

There are three things we can learn from the Canaletto school’s experience that can be leveraged in the art of making pricing decisions:

• Automated, data-based, precise drafting (minimizing the human effort to capture and analyze the detail).
• Flexible customization of the final product (flexibility to leverage, alter, or override technology-driven inputs).
• Repeatable and scalable approach (reliable results that can be replicated over time and across the teams).

Automated, fact-based, accurate drafting

Data-driven decision support in pricing is a high growth area in pricing technology, enabled as deal guidance, advanced price analytics, and automated price management. Pricing software vendors, such as PROS, deliver cloud-based SaaS solutions to enable those capabilities across industries. Pricing technology gives the pricing teams the ability to access and analyze rich transactional history (beyond what they are personally familiar with), systematically capture nuances, and rely on ready-to-use price suggestions via data-based insights. An objective, data-driven process reduces the anxiety of raising prices.

Flexible customization of the final product

At the same time, the data-driven approach has limitations in the B2B context. First, the information available in the data is usually incomplete and does not reflect the full complexity of the business decisions. Second, and even more important, finalizing the terms and closing the sale frequently involves human interaction that may be the deciding factor in winning the deal. In real world practice, assessing customers’ value perception of the offering, margin trade-offs between parts of the deal, and strategic factors require a human touch. These ‘manual’ decisions help refine the data-driven process. EY recommends clients to build a holistic approach, connecting the pricing strategy to operational pricing tactics that can be enabled by technology and embraced by pricing and sales teams. Clients need to establish the connection between the collective experience of the team with the processing power and data of the “machine”. Ultimately, adoption of the pricing technology by the business teams and synchronization of pricing strategy, technology, and operating model maximizes the value capture opportunities.

Repeatable and scalable approach

Pricing technology has matured to enterprise-grade, cloud-based solutions. Organizations that have implemented pricing technology rely on its ability to repeatedly leverage accumulated knowledge over time (knowledge retention) and across the organization (knowledge sharing). Technology enabled process is less vulnerable to talent turnover and accelerates transferring leading practices across Business Units (including acquisitions). Shared platforms allow the leadership to be an integral part of pricing governance, being ‘on the same page’ (literally) as pricing, sales, and finance leads. Our alliance with PROS is a response to the needs of businesses seeking scalable technology enablement with trusted transformation partners.

Case study

A global industrial products manufacturer was challenged by inflationary pressures, prices not tailored to the market, and a lack of forward-looking pricing tools. As a result, its commercial organization consistently found itself in a reactive fire-fighting mode when addressing key pricing actions.

EY teamed with the client to centralize disparate data sources, refine the process model, and implement PROS across 10 divisions. Together, we also developed a new governance model and KPIs to monitor progress.

As a result of this program, the client realized up to 5% increase in contribution margin across the portfolio, while also reducing the time required for catalog pricing from months down to a few days. The combination of experienced pricing consultants from EY and the software solution from PROS enabled the client to break through the cycle of firefighting that had been the norm for many years.?

Conclusion

Winning in the market and growing profits require discipline and talent. Pricing Teams and Deal Desk organizations make it happen by supporting their best people with automated, data-driven environments. Pricing vendors offer tools to enable the best combination of both at industrial scale in a SaaS, integrated environment. The key benefits for the organizations leveraging pricing technology in support of the talent are higher sales profitability, faster and more efficient pricing and quoting process, improved customer satisfaction as well as continuous learning.