2. 1
Finding the right approach — We live at a time of incredible choice with regards to software applications. With
the growth of cloud-based technologies, there has been an explosion of vendors and solutions to choose from. At
the same time, unlimited choice can be crippling as well, as it can complicate selection processes. Any technology
solution must be selected in the context of the overall IT environment, or risk being rejected by users, IT or both.
Rallying organizational support — If your company is like most, an abundance of corporate initiatives have
required extra attention and effort from your people. Given that there are still only 24 hours in the day,
employees often must invest nights and weekends to support the latest corporate program. As a result,
introducing a new initiative, even one with obvious and compelling benefits, will require internal selling and use
of political capital to get commitment and engagement from a cross-functional team including sales, finance,
marketing and others. Even a best-in-class system will die a quick death if it is rejected by your people.
Building supporting infrastructure — Prices and price options are intrinsic to the commercial interaction
with customers, and so any change to pricing tools or processes will need to connect in some way with your IT
infrastructure. At a minimum, this may mean uploading price lists generated in Excel into your ERP. On the other
end of the spectrum, this may mean developing interfaces and workflows between your pricing technology, your
databases, your ERP and your CRM systems.
A challenge on several fronts
There are numerous hurdles to clear as companies embark upon this journey. Many solutions have been introduced
just in the past 5 to 10 years that have the potential to complicate the decision process, including a wide variety of
software as a service (SaaS) and cloud-based technologies that can be purchased without assistance from IT. On
the other hand, because pricing is tied directly to customer interactions, your pricing technology has to interact
with your enterprise systems at some point, even if that interface is through manual transfer of data from one
system to another. And so your preferred approach may appear to be simple at first, but it may still require added
IT support, possibly around the clock, and may have unforeseen IT requirements.
To reach the needed level of integration and alignment, companies typically must confront three categories
of challenges:
Pricing technology: a journey,
not a destination
When bringing products to market and serving customers, businesses have
more technologies to choose from than ever, and an unprecedented
amount of data to put to use. In the current market conditions of
greater competition and more demanding customers, pricing technology
has emerged as an area of growing interest due to its potential to help
companies to grow margins through automation and optimization of
pricing. At the same time, in a cluttered marketplace of solutions, with
new options and concepts being introduced every day, finding the
right approach for your business to realize these benefits can be a
significant challenge.
At the same time, this is a challenge that can be addressed effectively,
especially if companies start with the right perspective. Rather than
seeking the “right” answer, it can be more productive to think of
your pricing technology choices as a journey with multiple paths and
multiple destinations depending on the needs of your organization.
And the journey can be incredibly rewarding — with increased profitability,
customer satisfaction, process efficiency and market share growth —
even before you reach a destination.
1
2
3
Finding the right approach
• Review multiple solutions and strategies
• Consider in-house vs. outside provider options
• Align organizational goals with output
Rallying organizational support
• Secure sales team buy-in
• Develop an analytics capability
• Create an IT support team
Building supporting infrastructure
• Identify IT infrastructure improvement needs
• Integrate with CRM, ERP and configure, price
and quote (CPQ) technology
• Clearly define key performance indicators
Challenge Goal
Prevent wasted
investment
Eliminate internal
dissension
Avoid unforeseen
IT gaps
3. 32
Find the right path for your journey
Successful implementation of pricing technology requires your price strategy to be considered first — i.e., what are
you trying to accomplish with your price? Secondly, it is important to have a good understanding of your pricing
processes, and where these need to be improved vs. where they need to remain untouched. Failing to consider
these elements can mean the difference between a successful initiative and one that can’t deliver as promised.
1. Price strategy
Price strategy sits at the center of it all and drives everything else. Some companies make the mistake of selecting
a technology and trying to form a strategy around it — and they end up paying more than they wanted to for a
capability that does less than what they need. Instead, your strategy should inform your chosen technology, so that
the economic factors underpinning that strategy are addressed.
Most companies employ one (or more) of the following price strategies, and each will come with associated
implications for technology choices.
3. Technology
All these considerations culminate in determining the technology you need and how it should be implemented.
Your desired outcomes will help drive the requirements for the new solution — one that makes sense for what you
want to achieve immediately, and also enables your continued journey in case your target destination may change.
Desired outcomes may fall into the following categories, each of which will suggest different supporting
capability requirements.
2. Pricing process
It is also critical to examine what your pricing process
looks like and where it needs to improve. The goal is to
determine the pain points and what you are trying to
optimize, making it consistent with the needs of your
organization. Your decisions should be driven by the key
steps in your process and how well they function:
How you set list prices. This can be a challenge,
especially for large online retailers who sell thousands or
even millions of products. Do you know where list prices
are competitive, or where they’re helping or hurting you?
Are you able to evaluate your price performance histories
and leverage that information?
How you design discounts and promotions. For other
companies, such as distributors, discounts and rebates
are an enormous part of the process. Can you tell where
these price concessions are making the most impact,
or whether your efforts are successfully targeting a key
customer segment?
How you execute sales. It is crucial to get the right price in the hands of salespeople when they need it, typically
when they are in the field with customers. How can you enable that real-time visibility into suggested prices that are
matched to individual customers? And can you identify where your sales force has opportunities to capture greater
revenue or margin?
promotiondesign
2.Discountand
1. List price setting
3. Sales execution
4.Benefitmeasurement
Value-based
pricing
Pricing based on economic
value created for the customer
How to measure and track
value for the customer
Pricing based on market
supply and demand
How to track
competitor prices
Pricing based on cost to
produce solution
How to maintain up-to-date
and accurate cost information
Market-based
pricing
Cost-plus
pricing
Efficiency, visibility and governance
Automated tools and workflow with audit trail,
designed with visibility and accountability
List price/margin optimization, designed with
performance metrics identified
Predictive and prescriptive analytics, designed
with robust modeling and real-time integration
with transactional system
Improved price performance reporting
Scalable platforms to support future needs
Desired outcome Supporting capabilities
4. 5
Options for pricing technology
Most companies consider three options, depending on
current capabilities, goals and budgets. And it’s not a
matter of choosing one and then being locked into it —
these options can be thought of as steps on your journey.
Determining where you start on your journey can be as
important as the path that you decide to take.
• Enhancing current tools — Most companies have
Microsoft Excel, Access and SharePoint, but many do
not think of them as effective tools for pricing. While
they have definite limitations, this is an affordable option
and can be a promising initial step for those just setting
out on their journey.
• Scalable point solutions — This more sophisticated
approach relies on statistical packages like SAS,
visualization tools like Spotfire and Tableau, and CPQ
solutions from any of a wide variety of vendors. It offers
more customization but requires more evaluation and
more middleware to connect the varying programs
(some of which you may have already).
• Enterprise pricing software — These comprehensive
suites, including PROS, Zilliant and Vendavo, are
developed by people whose primary concern is pricing.
Such one-stop shops are powerful and robust but
may be too much for those who don’t need this level
of power — the costs are steep, and so is the level of
support required.
Each option is discussed further in the next section.
You may be surprised that common desktop programs can handle complex pricing tasks, but they are being used
to do so every day across Corporate America, including by large multinationals. It’s a fast, inexpensive option with
a short learning curve. For those looking for that first step in a learning journey to find insights, these common
programs are very viable.
The drawbacks: There are limits to the amount of data these tools can manage, and they are very open to errors
from manual input. The process can be cumbersome and inefficient — version control errors can crop up, and
there is no audit trail.
A real-world example: The utilities industry has very narrow margins, so a leading company in this sector wanted
further insight into optimal bundling and pricing structures for its new offerings without investing in additional
tools or software.
The company leveraged the following process:
To collect cost drivers for the price floor and determine customer value drivers for the target price, the company
used Microsoft Excel for modeling and creating spreadsheet tools for salespeople to communicate its new
value proposition. The spreadsheet tool was used to provide real-time decision-making for sales to use on every
new deal.
Lessons learned: Using existing desktop applications can be a great way to develop your business logic and
decision rules for pricing — it’s essentially learning to walk before learning to run, and can help you to sell the value
case for further investment. Even if you decide to implement more sophisticated technology solutions down the
road, vendors will typically ask for your pricing process, rules, governance and metrics in advance. Using desktop
applications to develop these beforehand can save both time and money that would otherwise need to be spent
with consultants and vendors.
Option 1: Enhancing current tools
Determine pricing strategy Align pricing strategy with business objectives
Obtain a clear understanding of our cost basis
and value to customer
Develop cost structure
Align pricing with financial goals and segment value strategySimulate financial impact
Enable real-time decision-making on every dealImplement pricing tool
Stage Objectives
ERP
Pricing
managers
Pricing data
entry templates
Pricing
administrators
Pricing
database
5. 76
Option 2: Scalable point solutions Option 3: Enterprise pricing software
Specialized vendors have emerged that have developed
powerful platforms to use in environments where
pricing is particularly complex and dynamic, such as
airlines, retail and distribution. For example, if you
have millions of prices that are constantly changing,
having a dedicated external companion offering a
solution that can manage this level of robustness and
with deep expertise can be ideal.
Lessons learned: A custom solution can be the most powerful option for any given company. For an organization
that has already invested heavily in one aspect of the technology stack — in this case, the statistical pricing model —
and wants full control of this model for the foreseeable future, a custom solution may be the only answer. It is
important to understand that a custom solution will require significant ongoing investment to maintain, improve
and upgrade. Other issues, including training, knowledge management and licensing, will also continue to arise.
Lessons learned: It has been said that a journey of a thousand miles begins with a single step. In the case of this
company, that first step — the data model — required 18 months to establish. Depending on the complexity of
your business, data quality can be an enormous hurdle to clear. For some companies, it can take several years
to establish data quality, train people to use the data, and then earn trust in the data such that it is used to make
critical decisions. It is incredibly valuable to solve for as many of these types of issues — such as data, process,
governance and metrics — before engaging with vendors or consultants.
Determine pricing strategy Enable real-time data availability
Produce insights on price performance by
product family, customer group and more
Develop cost structure
Enable hand-over success and change
management support
Create custom dashboard
Establish analytical database
within IT infrastructure
Deliver the tool, training
and user guide
Stage Objectives Determine pricing strategy Enable creation of price lists that are
updated dynamically
Enable delivery of appropriate price lists
to customers
Develop cost structure
Create visibility into price performance
and optimize prices
Enable delivery of prices in SAP
Establish data model
Enable price optimization module
Stage Objectives
If you have the technology and the IT support, implementing
market-leading point solutions can be the most powerful
solution of all. Such applications and systems as shown above —
some of which you may already be using — can be integrated to
work in unison, providing an entirely customized solution that is
optimized around your business.
The drawbacks: Because this is not a “one-stop shop” solution,
you will need to manage multiple software vendors in order
to build and maintain your system. This can create issues
with regards to upgrade and negotiation cycles, and if your
organization decides to move away from one or more of these
vendors, it can create a gap in your solution stack. Creating
this system will also require middleware so that the programs
and systems can interact properly with each other. Because
of these requirements, you will need support from your IT
organization for as long as you operate this system.
A real-world example: A life sciences company had a robust pricing model that was driven by a
sophisticated statistical model, but it wasn’t able to deliver these insights to its sales force in a timely
manner. The company connected its statistical package to a new visualization software tool and
developed a custom dashboard to quickly provide insights on price performance by product family,
customer group and other factors. This tool enabled real-time insights for salespeople in the field.
The company leveraged the following process:
The drawbacks: Such solutions are pricey and may take a long time to implement, and are reliant upon robust
current-state processes and data. They also require a vendor support structure, and so you have to be ready to
sign up for a long-term relationship. You don’t want to go down this road and discover that a less-intensive option is
more appropriate, and reversing course after paying for a software implementation of this magnitude can often cost
executives their jobs.
A real-world example: A global manufacturing company needed to incorporate an acquired company into its
existing solution architecture, which included SAP and PROS, and wanted a complete integration process with a
pricing solution. It incorporated data models from the acquired company into PROS and implemented a margin
analysis module, allowing it to report on price performance for the new product portfolio.
The company leveraged the following process:
Enterprise
ERP solutions
Oracle
SAP
Salesforce
Specialized
solutions
Salesforce
Firepond
BigMachines
Vistex
Salesforce
Pricing
solutions
Zilliant
PROS
Vendavo
Sample solution vendors
tools
Visu
alization
6. 9
Conclusion: Multiple paths to pricing excellence
Your goals may be to use analytics to make better pricing decisions, to optimize the efficiency of your process,
and ultimately to customize offers in real time based on the customer context, product availability and where to
maximize margin. Achieving those goals is part of a journey — one that doesn’t have the same jumping-off point
for everyone or a rigid itinerary from step to step.
As shown above, you can follow a self-directed path to reach those goals. Greater profitability, efficiency and
customer satisfaction can be achieved as you proceed — as long as you continue to make learning a priority as you
travel along the path.
Contacts
Bernard Kang
Senior Manager,
Performance Improvement
+1 212 773 2699
bernard.kang@ey.com
Joseph Lackner
Principal,
Performance Improvement
+1 312 879 3744
joseph.lackner@ey.com
Daniel Bracke
Manager,
Performance Improvement
+1 312 879 3879
daniel.bracke@ey.com
Sales toolsAnalytics, reporting, optimization tools
Marketing
program
tools
Improve system
performance
Enable price list
generation
Enhance web,
mobile UI to
enable field
personnel
Enable analytics
dashboard using
enterprise-level tools
Implement price
and deal
optimization
software
Implement basic
analytics using
desktop-based tools.
Develop prototype
price models using
enterprise-level
tools
Implement
marketing
program software
Create data-
driven program
effectiveness
model Integrate pricing
programs, CRM, real-
time, optimized offers
Develop predictive
models leveraging
multiple data
sources
Handheld order
management,
self-service
portals, etc.
Develop prototype
price models in
desktop-based tools.
Price
management
tools
Dynamic program
and discounting
execution
Real-time
visibility to
availability and
tailored product
recommendation
Vision:
Dynamic pricing,
product and offer
development
Optimize share and margin
through custom offers
Starting
point
Leverage deep
customer insights
Efficient program
execution
Sample pricing journey
Sales toolsAnalytics, reporting, optimization tools
Marketing
program
tools
Improve system
performance
Enable price list
generation
Enhance web,
mobile UI to
enable field
personnel
Enable analytics
dashboard using
enterprise-level tools
Implement price
and deal
optimization
software
Implement basic
analytics using
desktop-based tools.
Develop prototype
price models using
enterprise-level
tools
Implement
marketing
program software
Create data-
driven program
effectiveness
model Integrate pricing
programs, CRM, real-
time, optimized offers
Develop predictive
models leveraging
multiple data
sources
Handheld order
management,
self-service
portals, etc.
Develop prototype
price models in
desktop-based tools.
Price
management
tools
Dynamic program
and discounting
execution
Real-time
visibility to
availability and
tailored product
recommendation
Vision:
Dynamic pricing,
product and offer
development
Optimize share and margin
through custom offers
Starting
point
Leverage deep
customer insights
Efficient program
execution
Sample pricing journey
