Companies across B2B industries recognize that digital pricing capabilities are key to profit growth. Many are launching digital pricing transformations to create sustainable value – but few manage to get their commercial and digital agendas in sync. In this article, we outline the path to becoming a pricing star and discuss how to ensure a digital pricing transformation lands.
Growing product assortments, enhanced customer data, internationalization, consolidation, increasing market transparency, and rising online competition – all trends that increase the need for digital pricing transformations in B2B environments. However, in the current digital ecosystem, the amount of technical options can be daunting. When push comes to shove, many struggle to get digital pricing right.
Only by first assessing your pricing maturity and needs can you select the technical solution and capture profit potential. Get this right, and you can improve your company’s margins by between two and seven percentage points.
Understand your digital pricing positioning
Your current digital pricing capabilities can be broken down into two factors:
- Pricing maturity: an organization’s capabilities to achieve the prices it deserves, including the pricing strategy, pricing logic, and value capture.
- Digital maturity: an organization’s capabilities to capture, combine, and visualize all relevant data to make impactful decisions.
Combining these two capabilities, companies can typically be sorted into four types:
- Old school firms: Value markups across products, product groups, and geographies are well defined, and discounts are logically structured and harmonized across the commercial organization. However, digital systems and data are lacking.
- Pricing amateurs: Prices are typically legacy based, with no comprehensive, harmonized logic for different price levels between customers and across geographies, segments, and the product portfolio. Digital capabilities and data capturing methods are also limited, reducing the ability to derive clear commercial conclusions.
- Leapfroggers: Typically firms that have driven large digital transformations to fix outdated IT systems across the organizational infrastructure. The pricing structure is not in place, but data systems and software are installed to embed pricing and commercial data.
- Pricing stars: Combine high commercial excellence with high technical maturity to drive analytical pricing decisions. The few that achieve this status can quickly accelerate pricing performance through digital and commercial synergies and are able to translate data opportunities into concrete commercial response strategies.
How to succeed with digital pricing transformation
The path to success in digital pricing is almost never linear. The greatest risk is to push for digital before having pricing maturity in place, leading to costly and complicated technical solutions that never truly take off, have to be adapted or, in the worst-case scenario, be completely rebuilt and replaced.
Success strongly depends on your current position and requires continuous adaption based on the maturity trajectory. Pricing amateurs usually need to develop their pricing maturity before they can apply technical expertise and leverage commercial developments. Old school firms can revise pricing and start building technical capabilities that create economic value. Leapfroggers are in the trickiest position – despite the right technical expertise, without a clear pricing logic, commercial strategy, or price levels, they might lack the technical maturity required to match their pricing ambition. Pricing stars need to stay on top of the market, with the challenging task of pinpointing where to optimize the pricing structure.
Which digital pricing solution should you choose?
Meanwhile, there is an overwhelmingly vast range of system solutions that can enhance pricing, from holistic ERP transformations to detailed target pricing software. To select the most suitable solution, you need to clearly define which part of the business process needs to change, e.g.
- Price setting: needed to improve pricing maturity, including the design principles for pricing as well as tailoring the pricing structure.
- Price guidance: enable sales in their quest for better prices, e.g. through a digital price engine or CPQ software to enrich CRM environments.
- Price governance: measuring price performance to tweak and improve the system and the sales organization.
In a highly tailored business, the best approach might be a light version of price management without extensive quoting, since every quote will be different. In a more standardized, high-volume business, you might benefit from highly integrated quoting directly linked with order processing and invoicing.
The more holistic the need to change, the more suitable an off-the-shelf solution. For more granular needs, a customized tools can be bought or built from scratch but requires the necessary technical and pricing expertise within the organization.
Conclusion: Four key success factors for digital transformation journeys
- Strategy precedes software. Companies that do not understand and define their commercial strategy will face great difficulty in determining what should be included in their pricing structure.
- Lead with commercial perspective. Although enthusiasm for IT capabilities can be the catalyst for digitizing pricing, IT departments are usually not in the position to grasp the business’s needs, so it’s crucial to sync commercial and digital blueprints.
- It is a people business. Make sure that sales don’t consider a pricing engine to be the single source of truth, and that management embraces the role of sales in the new commercial way of working.
- Ensure continuity. Digital pricing transformations are not a one-time exercise; as market dynamics evolve, so should the pricing solution. To increase the chance of success, set up a dedicated pricing team to support the organization along this journey.
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