If you are responsible for the P&L or commercial operations performance within your organization, it’s likely that the term “pricing engine” is a familiar one. However, precisely understanding the necessary performance standards, integrations, and data processing and calculation capabilities that both define best-in-class and fit the criteria of one company is not as easy. At its most concise:
A pricing engine is a system of record that can hold all your price records and is used to calculate and deliver prices to any commercial system in real-time.
Why is a Real-Time Pricing Engine Necessary?
Traditionally, pricing engines have existed within ERPs. They house the data and logic that generate the final price that is presented to a customer in any channel. For example, a pricing engine may house list prices, country list prices, customer agreements and discount or override structures for negotiations off list price.
Or, a pricing engine may house pricing that serves as the starting point for building up prices based on dynamic cost changes, multipliers, taxes, fees, tariffs or other charges. It may house complex price logic such as customer and order-specific or customer-specific discounts. Each time a transaction or order requests a price, the pricing engine must follow the declared price build and arrive at the right price that should be presented to the customer.
How companies structure price builds varies widely, and it's not uncommon for one large company to have many pricing engines with different types of price builds.
However, the digital age has completely overwhelmed the capabilities of traditional pricing engines housed within other systems, and as such, companies are increasingly seeking a faster, more flexible, and higher performance alternative.
Companies require a Real-Time Pricing Engine to meet the demands of the digital age. Best-in-class pricing engines are built on a cloud-native platform with a highly available API.
An application like this can execute real-time price calculations (or real-time price builds) in response to calls from any commercial system, incorporate an unlimited number of disparate data sets into the pricing engine, perform complex calculations on demand, and enable real-time price delivery back into commercial systems.
Read more: Real-Time Pricing Engine
Trends Impacting the Shift to Real-Time Pricing Engines
Now that we have level-set the term, we can explore the need. Two factors are at play: The rise of digital commerce and the limitations of ERP systems to execute price logic quickly enough to calculate and deliver prices in real-time.
Read more: How to Counteract Inflationary Pressure
Gartner explains the convergence of these two factors well within the firm’s “Harness the Core Capabilities of a Digital Commerce Platform” foundational report.
It states that pricing is a key component of any digital platform which “may need to be real time if pricing is highly dynamic. Real-time integrations to ERP are fraught with performance risks, so often caching layers or other forms of ERP protection must be in place.
[The] interaction of pricing with promotional engines can be complex and must be approached with caution. Pricing management is an area of growing sophistication and disruption. Third party point solutions are often required to take advantage of innovations.”
Certainly, the price optimization and management industry has growth exponentially in terms of sophistication, disruption and innovation. In recent years, the need for companies to provide real-time pricing to customers has grown acute, but how has this trend converged with others? Let’s dig into how the rise of digital commerce and the limitations of ERP systems have resulted in a burgeoning demand for real-time pricing engines.
Pricing & Digital Commerce
The rise of digital commerce, accelerated by the global pandemic, taxes even the most highly equipped pricing teams as they try to ward off competitors and build brand loyalty. Price transparency is now commonplace in B2B due to eCommerce ubiquity and if it takes weeks or months to update pricing, maintaining competitive pricing is impossible. eCommerce pricing must be dynamic; it’s no longer an option.
Dynamic eCommerce pricing in B2B, however, is not as straightforward as it is in the consumer world. Amazon may be able to review pricing on thousands of products within two minutes, but that is child’s play in the world of highly negotiated B2B pricing. Presenting a price online comes with a host of questions:
Is this a known customer with a pre-negotiated price?
Is this a new, unknown customer on the open web?
If a known customer, is this new or existing business?
Are the prices aligned to what salespeople are quoting?
If online customers call sales reps for a quote, will pricing be aligned?
Can customers counter pricing online? Can price negotiations be automated?
If my costs change daily, can I update pricing immediately across systems?
Determining what price to show in different scenarios is complicated and often requires the execution of a complex price build inclusive of taxes and other fees or to discount to the appropriate net price based on a set of well-defined price rules. Layer in the need to update pricing quickly as the market, competition, or other factors necessitate, and the complexity will quickly overwhelm any pricing team with only manual tools at their disposal.
eCommerce also presents a host of new, interesting data sets that can inform online pricing strategies. Companies must be able to capitalize on the many forms of valuable eCommerce data that they collect. This means the ability to dynamically adjust prices based on cart abandonment, pageviews, inventory availability, quantity breaks or discounts, and instantly calculate and deliver eCommerce prices.
Pricing & ERP
Housing complex price logic and enabling real-time retrieval, often in very high volumes, within ERP is increasingly infeasible. Most large B2B companies rely heavily on ERP systems to act as their pricing system of record, the engine containing all their price logic.