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.