Grow Profitability With Automated Price Negotiation

This article originally appeared in Modern Distribution Management. Republished with permission.

By: Eric Smith, senior analyst (MDM)

The old, manual methods of price negotiationscancost theaverage distributorupward of5%inprofit, according to a recent study byZilliant, but a companycouldrecoup those lost dollars— and even grow profitability —by implementing an automated, intelligentprice negotiationsystem.

That was the message fromTodd Pate, business solutions consultant,Zilliant,in the recent MDM Spotlight video, “Step Up Your Pricing Game with Automated Negotiation.”This latest installment of Spotlight, hosted byJohn Gunderson, VP sales, analytics and e-business, MDM, focused onwhya distributorshould considermodernizingits price negotiation toolsand how they work.

Adistributorshould considerimplementingautomated price negotiation toolsbecausethe landscape has changed in terms of how customers look at pricing for the products they buy—whetherit’s a B2C or B2Bpurchase.

“The world is different when it comes to what customers expect in pricing,” Pate said.“Increasingly,what we’re seeing,not just in distribution, but across a number of industries,is that the typical relationship isevolving,andexpectationsareset on more of aB2Ctype of experience,even in aB2Bmarket. That’s understandable,given that all of our customers areconsumers themselvesandare using the internet to buy on a regular basis.”

What’s more, COVID-19has companies up and down the supply chain price-conscious, so negotiation has becomeeven morepervasive in today’s environment.

“You’ve got customers that are getting squeezed on price at the topandyou’ve got manufacturers that are giving you price increases at the bottom,” Gunderson said. “You,as a distributor,are going to have to work hard and efficiently to get paid for your value this year.And the more automated you can get versus manual, the more effective you’re going to be and the more profit you’re going to take to the bottom line.”

How DoesAutomated Price NegotiationWork?

Automated price negotiation removes the salesperson’s desire to closeadeal by offering the floor price on a particular product when a customer balks at the list price. But this process isn’t optimal.

“Going through that process of negotiation can be cumbersome,” Pate said.“It’s often run by individuals that aren’t very well equipped, quite honestly,to negotiate well.They oftentimes will default to pleasing a customer and trying to give them a price as quickly as possible, so that they can process the order and move on to the next problem.”

Intelligent automated negotiationsets pre-defined rules on what prices can be auto–approved without human intervention—giving sales reps, partner resellers and customers the flexibility to negotiate within a range of prices that still maintain necessary marginlevels, andescalates quickly and efficiently when needed.

“Automated negotiation is a fairly new phenomenon,” Pate said.“It’sbeen enabled through the advent of big data and big data science capabilities that allow companies to take on this process that historically has been a very manual process.”

In this process, a distributor sets aprice point for aparticular product and a particularcustomer, who thencanself–serve their product ordering. If they want aspecial price“because they’ve either seen a recent drop in commodities or they have been potentially shopping around and have a different price in hand from a competitor,” Pate said, they can request that price through the ordering portal.

“You canthenset up an automated negotiation process to intelligently be able to agree on a price with a customer based on a series of algorithms and approve it automatically as long as that final priceis within that window that’s already been pre–approved,” Pate said. “If customersrequest prices that are outside the bounds, you still have the ability to route that through a more traditional review process.”

In other words,it includesthe best of both worlds — an automated system to handle most negotiations but also an opportunity to bring pricing exceptions to the management team’s attention.

“You can nowactually negotiate a better priceand capture that that 5% of profit opportunity that a lot of distributors leave on the table duringnegotiation,” Pate said. “Not only does it solve that math problem for you, but from a customer perspective, it creates a better experience.”