What Pricing Software Can Do... and What It Can't

November 17, 2016

What pricing software can do

Pricing software, like many other types of enterprise software, is sometimes seen as a cure-all solution. The solution for every pricing problem.

Modern software solutions for setting prices boast an impressive array of functionalities. For example, real-time pricing of products or services using multiple internal and external factors, and smart optimization algorithms based on artificial intelligence and machine learning. Used correctly, software has major potential to maximize profits. However, they cannot solve all pricing problems.

Through our project experience, we have compiled a list of the most important things a pricing solution can do for you. And the corresponding pitfalls.

Simon-Kucher digital solutions

What pricing software can do:

  • Ensure better compliance with pricing policy and reduce the number of pricing exception
  • Improve price differentiation at the deal level, across products, channels, or customers
  • Provide endless and highly configurable price monitoring/reporting possibilities
  • Allow for quicker onboarding of new sales people and higher sales rep satisfaction

What pricing software cannot do:

  • It has restricted ability to reflect customers’ willingness to pay in price points. The historical perspective creates limitations when pricing for new customers or low velocity products
  • Cannot automatically implement your pricing strategy
  • Unable to interpret price analytics to use as a basis for deriving recommendations on the best action to take
  • There’s a risk of low acceptance from the sales team with off-the-shelf solutions
  • Software is not a substitute for your actual pricing strategy. Some questions require attention from pricing experts. E.g. whether to pursue penetration pricing to gain market share, or follow a price skimming strategy and set a higher price. This cannot be answered with the simple click of a button.

There are many risks when implementing such software, but also many benefits. What's essential is to manage expectations and be aware of these risks.

One final word of caution: it is crucial to have the basics in place before implementing a solution. As mentioned above, pricing software is not a substitute for a good pricing strategy and the "best" companies understand this. According to the Global Pricing Study 2016, the "best" companies place higher importance on having the right organization, support processes, and methods in place, to proactively steer pricing.

That’s why, compared to the "rest", 44% more of the "best" have a dedicated pricing function in place for their goods and services. In addition, 25% more of them have clear processes behind their product prices, and 27% more have methods to support pricing.

*About the Global Pricing Study 2016: A total of 2,186 companies from over 40 different countries and 25 industries participated in the Global Pricing Study 2016. Respondents, of which 38 percent were C-levels, answered questions on their pricing strategies, price pressure, and the competitive environment. The study takes place every two years and is the only one of its kind.