The B2B Pricing Alchemist: Why You Need Both Art and Science to Succeed

September 1, 2020 Kyle Nations

price negotiation

“The Alchemist” By David Teniers the Younger (circa 1645).

 

"The greatest scientists are always artists as well." - Albert Einstein

“Art and Science have their meeting point in method.” - Edward G. Bullwer Lyton

 

Earlier this year, I attended a trade show to talk B2B pricing in an industry known to have highly-tenured employees. Okay, I’ll say it: older, experienced individuals that have “logged lots of miles” and “earned their stripes.” A group I’m often included in myself. 

 

This industry is also known for somewhat outdated back-office technology (or no technology at all). And, what some might consider rigid attitudes about new approaches to just about any process. 

 

The phrase, “We’ve done it like this for a long time and can do it with our eyes closed,” comes to mind. And perhaps “eyes closed” is a good description of how pricing is executed in many old-line businesses where decisions have been made for decades by “gut feel” and flying by the seat of the pants. As one individual told me as we exchanged business cards, “I don’t need science to tell me what a customer will pay for my product.”  

 

While that person likely knows their customers very well, science could tell you so much more. For example, where customers have been underpriced relative to the market, or where lowering price would result in higher volume. Science can also surface sales insights, such as how to overcome cherry-picking in certain product categories or where the slippery slope of customer defection has begun at the product category level.

 

The Craft of Pricing is Based in Art

Effective pricing departments require their pricers to have a good understanding of the company’s products as well as the specific markets a company serves. At a more micro level, pricers may also be required to recommend pricing strategies based on specific customer, cost and competitive factors. Companies depend on the pricing department to apply their knowledge of the company and pricing to manage a queue of pricing exception requests. Pricers are trusted to strike the delicate balance between preserving margins without sacrificing deals or orders. Codified pricing policies that are too rigid may not account for every unique circumstance or minute market force. They may not leave enough room for negotiations that could result in an acceptable win. If not closely scrutinized, this might result in leaving money on the table or pushing a customer to pursue other options.

Science Perfects the Art

 

Conversely, pricing approached without science is like a game of roulette, to be indulged by those willing to gamble on outcomes, even when the stakes are very high. Science sees things our human instincts can’t recognize. To rely too much on the art of pricing is to ignore the most powerful allies the pricing department has at its disposal today: data science and software. 

 

The use of data science is hardly novel to the business world; computational analysis has improved dramatically in tandem with advances in computing power, resulting in enormous financial upside for companies willing to invest in these technologies. Nowhere is this more evident than in the application of pricing. It is not uncommon for Zilliant to see an incremental lift in margins and growth rates in the high single- and even double-digits when these technologies are applied.

 

b2b pricing strategies

 

 

The Nexus of Science and Art in Pricing

Perhaps the best way to understand the science and art of pricing today is to assign monikers to those who participate in their application based on the degree to which they balance or lean into one approach or another.  

  • One who applies neither art nor science could be considered a Novice in today’s world where pricing experience and the use of tools are increasingly proliferating in every industry. 
  • A pricing Artist may be the one who relies heavily, if not exclusively, on instincts when pricing, and may outright reject any approach using advanced technology, to the detriment of results. 
  • The Scientist, while well-positioned to succeed in their pricing role using the latest and greatest algorithms, price optimization models and techniques, may rely too heavily on technology without considering the ‘softer elements’ such as relationship, market potential or the need to take a competitor out of the equation to capture long term opportunity. 
  • And then there’s the Alchemist

 

During the Renaissance period, the definition of science was more expansive than it is today; it included philosophy, theology, poetry and the arts. The seventeenth-century joined theories of the natural world (previously the realm of university-trained philosophers, theologians, mathematicians and astronomers) and sensory engagement with nature (the realm of artisans, who achieved their understanding through the mechanical arts). The result was what we now sometimes call Alchemy.

 

The pricing Alchemist combines the power of data science, experience and intuition to transmute and transform customer and product portfolios for the highest benefit of both. This transformative power, constantly sought after and further refined through extensive and intuitive experimentation across the centuries, is what differentiates Alchemy from pure science or art. The ultimate achievement for the Alchemist in the middle ages, who applied both artistic intuition and the science of the day, was to transform rocks to precious metal, to create gold from ordinary material.

 

Perhaps today’s Pricing Alchemist is called to do the same: to transform pricing capabilities into golden opportunities through the application of art and science to drive optimal performance for today’s most competitive enterprises. 

 

An example of how pricing and art intersect is in the application of Zilliant’s automated price negotiation. Zilliant Business Solutions Consultant Todd Pate explains: “You can set 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 price is within a window that’s already been pre-approved.” 

 

According to Pate, “If customers request prices that are outside the bounds, you still have the ability to route that through a more traditional review process.” This example leverages the best of both worlds — an automated system to handle most negotiations (science) but also an opportunity to bring pricing exceptions to the pricing team’s attention for special review and deeper consideration (art).

 

If you would like to learn more about how Zilliant supports pricing leaders in blending their art with data science, software and innovative approaches to solve today’s most complex pricing problems, reach out to me at kyle.nations@zilliant.com or connect with me on LinkedIn. Let us help you use your best resources to achieve Pricing Alchemy.

 

About the Author

Kyle Nations

Kyle Nations is Sales Director at Zilliant helping global B2B companies realize improved financial performance using advanced technology for optimal pricing & sales effectiveness.

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