Educated Selection

With user companies turning their focus to pricing solutions, they face a crowded market where vendors do their best to differentiate themselves by touting one feature or another. Firms are asking questions like "What tool is most appropriate to my products and services? What price tag should I expect? And what is the average length of implementation?"

In order to help the users make an educated selection, Forrester Research published a series of case studies of companies that implemented pricing solutions from vendors like Metreo, PROS Revenue Management and Vendavo. These implementations prove that while labels like optimization, analytics and management are of some help, the only way that a firm can select the right solution for its business is to test-drive the tool and determine how it meets its needs.

To ensure they will achieve expected benefits from the tool, companies must measure the tool's applicability to future business growth; the users' anticipated adoption level; and the additional effort required to make any necessary process and organizational changes.

With competitive and customer pressures increasing in recent years, a $14-billion diversified industrial manufacturer was looking for a pricing solution that would help streamline pricing best practices and improve margins at a business-unit level. The company began to consider investing in a pricing solution in Q3 2003. It researched the solution space, selected Vendavo, and rolled out the solution in Q2 2004. To choose the right solution for its business needs, the manufacturer:

Researched the potential benefits of pricing solutions. The user company was looking to implement new pricing best practices that could help users to improve the outcome of every transaction. Early on, the client's team decided that a technology tool would help in streamlining and sharing these changes in pricing practices across business units. The project team estimated that an investment in such a solution would pay for itself within the first year of deployment. By convincing business units of this value, the team succeeded in finding the budget for this project. Armed with this information, it embarked on an effort to convince its executives to allocate the necessary funds for this project.

Relied on industry resources to create the initial vendor list. After getting its organization's buy-in, the team interviewed more than half a dozen pricing solution vendors. It did not define its search along optimization capabilities and kept an open mind to any approach. The team decided that its business model did not lend itself to optimization. This is because the company was mainly a B2B business, where each transaction was uniquely configured to a customer's requirement. The sales team needed a tool that would help make the best pricing decisions for each unique transaction. This decision left the team with two vendors from its initial vendor list.

Required custom demonstration to determine solution fit. To start, the client's team spent time with the vendors and listened to their pricing philosophies. But to ensure fit, the user company had to see how the solution would meet its unique business requirements. To that end, the client's business managers collaborated with the vendors to define specific business scenarios and to evaluate how the tools approached the problem. The vendors created a custom demo that showcased their solution strengths in meeting the client's needs. In addition to the initial pilot, the manufacturer researched nonfunctional criteria, such as the vendor's customer base, industry experience, viability, and venture backing. The user company's team selected Vendavo's Deal Manager.

From the onset, the team planned that Deal Manager would be the primary quoting system in the two business units to ensure that all quotes and contracts were captured with the tool. This allowed the team to accurately assess the value of the system in helping users to make more educated pricing decisions. The client used Profit Analyzer in its quarterly review process to demonstrate to business units the impact of policy changes and rationale for pricing strategy. And although individual user performance was not tied to the degree of tool adoption, business leads were encouraged to assign a portion of their quarterly bonus to be based on improvements in price. The team feels confident that this will prove the value of the tool.

Measuring the Benefits

This was critical to ensuring continued executive support for expanding the use of this pricing solution into eighteen more business units. The client aimed for a 4 percent improvement in margin, with the expectation of reaching 1.5 percent to 3 percent. To reach that level, the team worked on using the tool to correct pricing policies or to better account for all hidden costs in prices. While it remains to be seen whether these benefits are sustainable across business units, the client's team is confident that the tool can be used to uncover new pricing opportunities that will improve margins.