The Price Is Not Right

Michael Vizard

About this time of year, when many corporations are trying to close the book on 2009 while fine-tuning their budget forecasts for 2010, there is always a nagging feeling that money has been left on the table.


The reason for this is that pricing within most companies remains more art than science. Far too often, pricing is determined almost daily between two competing groups within the company. Salespeople, typically paid on a percentage of revenue, tend to push for lower pricing to help seal the deal. The finance folks, more concerned with profit than revenue, tend to push back in the name of net income.


Neither side, unfortunately, has a lot of science on its side when it comes to staking out their positions, which creates an opportunity for IT to add real value to the business. Given the fact that the variables that go into pricing are more complex than most people realize, the first thing corporations need in order to get pricing right is an application that is more sophisticated than a spreadsheet. Most spreadsheets, for instance, don't really make it possible to track pricing over time, geography and specific sales channels. So the end result of using a spreadsheet application to determine pricing is a best guess.


For this reason, Andres Reiner, executive vice president, and Sunil John, director of product management at PROS, a provider of pricing optimization software, argue that companies need a dedicated pricing application that has been designed from the ground up to help companies manage pricing. To that end, PROS has recently signed pacts with Cast Iron Systems and Salesforce.com as part of an overall effort to integrate its software with mainstream enterprise applications.


Granted, at $1.6 millon per average installation, PROS is not for everybody. But when it comes down to the final analysis, most companies succeed or fail based on their ability to be profitable, which to a very large degree is based on their pricing strategies. Given the importance of this activity, along with all the time wasted debating it, investing in price optimization software might be one of the smarter IT moves a company could make in 2010.



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Dec 30, 2009 6:35 AM Susan Boyme Susan Boyme  says:

Great post - I would add that the cost of software shouldn't be a deal breaker.  There are SaaS price optimization companies like Revionics that offer pay-as-go options so that the return is experienced as you pay for the product.  The big opportunity for optimization is to help companies have one forecast across applications - to get price, promotion, clearance, even inventory in alignment.  Manual approaches or even disjointed systems don't allow it!  More about Revionics at www.revionics.com, or @revionics.

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Jan 3, 2010 4:36 AM Andrew Moore Andrew Moore  says:

This is a very good point.  Our firm has struggled with price as we do not seem to have a good way of performing a competitive analysis.  Our firm has about 50 people, so the software mentioned is very hard to swallow for an SMB.  I wonder if there are more cost effective solutions. 

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Jan 18, 2010 2:54 AM Ted Hartnell Ted Hartnell  says:

A cheaper approach that doesn't require integration with an enterprise application is called market simulation.


Decision Ready (www.decisionready.com) combines a number of market science tools to simulate the activity of a market. A Wisdom of Crowds methodology first aggregates a range of market perspectives to build an accurate Market Map. Then a Nash Equilibrium algorithm is employed to calculate profit-maximizing-prices for each customer segment.

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Jun 8, 2010 6:05 AM Ally Ally  says:

I think pricing software is very important to making money in today's economy.  Pricing software helps prevent overcharging and undercharging.  It is also very important to have a reliable pricing software company with credibility so that they are on top of their pricing software.  Companies can't afford a pricing software that works inconsistently.

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