Simply put, price management is the function of creating and updating pricing within a business. It includes setting and managing pricing across a variety of price modes (or types of pricing that can occur in a business) such as list, matrix, negotiation, or customer-specific. Price management also includes updating prices when necessary, managing pricing segments, measuring key performance indicators (KPIs) and more.
For mid- to large-size B2B companies, manual price management is increasingly impractical. Yet, complicated spreadsheets continue to be the go-to method of managing prices, even though this method is not effective in giving pricing teams the control, flexibility and speed they need to respond quickly when price changes are warranted.
The number of factors to consider when managing prices on a wide scale has revealed some critical limitations to the traditional approach of using manual spreadsheets and calculations for price management. In B2B, the task of updating prices due to cost changes, margin objectives, or other market factors is an onerous, time-consuming, and manual one, prone to errors and inevitable frustration. Even for the most skilled pricing professionals, simply aggregating the appropriate data into a usable format, having enough processing power to manipulate massive amounts of data, understanding the implications of each price change, and seeking the necessary reviews and approvals can take weeks to complete.
Increasingly, B2B companies are utilizing more robust price management software to help the pricing team tackle price management and administration challenges, streamlining previously burdensome tasks with a flexible, highly configurable price management application.
How Does Price Management Work in B2B and Why is a Better Way Required?
A B2B pricing strategy must simultaneously meet the goals of the business while meeting customer pricing expectations for each unique circumstance. Yet, the complexities of modern B2B companies make setting the correct price difficult. The sheer proliferation of the numbers of product and customer combinations to price paired with factors that influence price such as cost, competitive dynamics, and much more makes setting prices extremely challenging.
In addition to the complications of setting prices, as market conditions change prices must be updated throughout the business. A seemingly simple change to list price causes a cascade of changes throughout the business. How will this new price list impact discount structures? How do you ensure that matrix prices stay aligned in a rational fashion? What about customer agreements – can they be renegotiated to reflect the updated pricing structure? How quickly does a price change get communicated to the sales team, and how are reps held accountable to the new pricing? Today, many B2B organizations manage all this with manual processes, from decentralized spreadsheets to by-hand ERP data entry to sales team email blasts that go unread.
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External pricing triggers are just as troublesome. The modern market keeps B2B pricing teams on their toes, with fast and furious curve balls like tariffs, frequent cost changes, inconsistent demand, competitive price threats, disruptive eCommerce trends, price pressure from increasingly disloyal customers and more. When a new trigger is introduced, a tangled web of people and processes gets activated. Before an updated price reaches customers, so much time is spent navigating this labyrinth that the new price is often made irrelevant by the next incoming trigger.
Read more: How to Counteract Inflationary Pressure
It’s difficult to effectively address these market forces without a proper internal process powered by a price management application. The promise of price management software is that it aligns teams, smooths out the pricing process and enables flexible, rapid price changes in response to external triggers.
Read more: The Road to Price Management (eBook)
How to Manage the Most Common B2B Price Types?
A price type is a framework for understanding how a company arrives at a price for a given customer, which typically takes on similar forms across many industries in B2B. Price types (pricing architecture) each carry out a specific purpose but, over time, tend to drift from their original design and lack consistency. This creates a heavy burden for pricing teams responsible for price administration and management. Here are the four main price types and the price management ramifications of each:
Price lists tend to quickly become stale, as product-value relationships, such as good-better-best and private labels are not reflected, and cost changes are not pushed through intelligently or quickly enough. This issue is amplified for companies who do business across multiple geographies, as currency exchange and country-specific adjustments must be accounted for.
List prices should be a company’s reference point for discounts. However, the increasing number of products, relationships and competitive considerations often render the list price meaningless when managed manually, and therefore unusable as a reference price.
B2B companies often further complicate list prices by artificially inflating the price to try to influence pricing decisions made by sales reps — a tactic that rarely works in practice.
Tip: Use price administration and management software for setting and managing list prices. These tools make it easier to add and price new products, handle end-of-life product pricing, manage and adjust product good/better/best relationships, make updates due to cost changes or other competitive and market factors, and cascade list price changes to other price modes.Continue reading "An Introduction to Price Management"