By Greg Peters
Last year heralded an enormous shift to eCommerce, and if that weren’t enough, B2B companies must also contend with a generational change. Pew Research reports that 2020 saw the largest exodus of Baby Boomers retiring from the workforce to date: 28.6 million retired, more than double the number who retired in 2019.
As this generation leaves the workforce, they’re being replaced by workers raised in the age of the internet, with high expectations of speed, accuracy, and data-driven information. Exacerbating the challenge of industry veterans exiting the workforce is that this transition will produce an inevitable and serious gap in skills and knowledge—and this will have a huge impact on pricing.
How teams must change
Internal pricing struggles and external channel conflicts can’t be solved by taking a pricing manager, a sales rep, or an eCommerce manager to task. The speed and scale of the internet are beyond the human capacity to compute. The same can be said for the complicated nature of pricing effectively in today’s business environment. Old pricing workflows must be reimagined entirely.
The first step to success involves evaluating your current pricing processes and determining areas that are ripe for improvement. Not all companies will have such an expert on hand. If not, a best practice would be to work with a partner experienced in identifying and quantifying the specific areas of opportunity.
Commonly, there are a handful of pricing issues related to misaligned market pricing, inconsistent pricing, and inefficient pricing practices, and these are key culprits in margin loss. For example, some organizations might experience misaligned market pricing more frequently. According to our annual benchmark report, that can contribute anywhere between a 0.5 to 6.5 percentage point loss of margin.
One phenomenon we observe is called “groove pricing,” which is a specific behavior tied to humans making pricing decisions. For example, imagine looking at a price list and considering a discount. It’s highly unlikely that you’ll give a 17.6 percent discount, more likely that it will be 15, 20, or 25 percent. Groove pricing also happens when sales reps assume a common margin—say 30%—in a given product category under all circumstances. Perhaps some deals could have been won at a 30.5 percent margin. In isolation, it seems insignificant, but added up over thousands or millions of transactions, it’s tremendous. This is just one of a dozen or so common pricing phenomena that occur within a business, resulting in significant annual margin leakage.
Once critical pricing areas for improvement are pinpointed in the business, you can embark on the task of deploying solutions to correct the course. With the right partner, you can design a solution that uses advances in pricing science and software to recapture a portion of that lost margin, typically on the order of 100 to 300 basis points of gross margin improvement.
For pricing teams, the outcome is spending less time reviewing and approving pricing exception requests from sales, and more time deploying margin- and revenue-driving pricing strategies across the business and across channels. The pricing manager role thus elevates from the blocking and tackling to be much more strategic. As the company’s strategy evolves, pricing managers quickly adapt their campaigns accordingly.
Whether in the field or on the phone, salespeople can proactively offer competitive prices instead of waiting for approval. This allows them to respond faster to customers and ultimately, to close more profitable deals. With embedded pricing analytics, it’s easy for them to dig into the rationale behind each price and see that price recommendations are in-step with similar customer, product, geographic, competitive, or other circumstances. This allows your sales team to quote with confidence.
Pricing negotiations can even be automated online, with AI interacting directly with customers. The “machine” can counter price exception requests and auto-approve prices without human intervention, only escalating for intervention when price requests are outside predetermined bounds. For volume-based businesses, this can remove a huge number of price exception requests that salespeople and pricing teams previously handled. This subverts the need for the majority of approvals, reduces sales backlog, and enables sales teams to focus on more strategic, larger deals.
The transformation in pricing also extends to product development, category management, and marketing teams. Traditional pricing often involves adding a margin on top of product development and marketing cost. Instead of taking the time and research to form an educated guess, pricing managers can analyze real-world market data, come to faster conclusions and immediately disseminate that guidance to the field, opening up a more diverse array of pricing options and resultant increases in profitability.
A side benefit of this ongoing digital transformation is felt within younger members of the workforce as well. From a pricing perspective, both pricing and sales teams benefit from having smarter software and superior science to aid in their respective roles. This advanced data infrastructure can also significantly improve ramp-up time for new sales reps. It’s well-known that the learning curve for new sales reps in B2B is steep. Fortunately, much of the collective experience and wisdom of those exiting the workforce has already been captured. How? It’s embedded in the transaction data companies have been collecting for years. For example, which customers bought which products, when, and for how much. Price optimization and predictive sales analytics can proactively mine that data and pull out insights that can be used to help guide new sales reps on each key commercial decision.
As for finance, the CFO finally regains oversight into pricing because pricing KPIs are easily visible and trackable. When strategic goals change, sales teams adapt. The entire business benefits.
A look ahead
B2B has traditionally been slow to digitize. As the pandemic forces a faster-than-expected evolution, pricing has a direct impact on the bottom line. Moreover, pricing can be digitized, making it the most profitable place to begin. An aging salesforce, soon to be replaced by teams of young, tech-native new hires, adds an incentive for B2B companies wishing to stay competitive in hiring.
By pulling the levers that matter most, B2B can adapt safely and stay strong in an ever-changing world.
About the author
Greg Peters is the Chairman, President, and CEO of Zilliant, one of the leading providers in predictive B2B sales guidance. Prior to Zilliant, Greg served as president and CEO of Vignette, the leading content management company and one of the most successful initial public offerings in 1999. He also served as president and chief executive officer of Logic Works, Inc. and controller and chief financial officer for Micrografx, Inc. Greg sits on the board of directors at LiquidFrameworks and Rhodes College, and is an accomplished industry speaker who has appeared at numerous leading industry events.