Price optimization software helps you make sure that the price is right. But what is the right price?
Pricing is complicated. The bigger and more complex the market space is and the more complex the product, the more highly evolved the pricing solution needs to be.
Pricing is more than recovering costs and pulling in some margin dollars. Pricing must cover expenses, but there is still more to it when it comes to telling someone how much something costs. That number has to mean something to the customer. It has to relate to some comparative, quantitative metric that makes sense to your buyer or market.
Price optimization software makes sure that the price is correct not only from a financial standpoint but also from the standpoint of the customer and their perception of value for their market as they see it.
Price Optimization Software Works with All Common Pricing Variables
Walking through a supermarket, you will find a wide variety of prices and pricing metrics in use. Some items are priced by the pound, others by the dozen or by physical units. You will find quantity discounts for certain items with premium pricing for some brands and discounts for others. If you happen to visit the same supermarket in a different city or even neighborhood, there will be price differences that are peculiar to that geographical location. You will see prices that are only offered to “special customers” and prices that are only good for a short period of time.
In the B2B world, things are just as complex. Price can vary by quantities ordered and measured by all manner of esoteric metrics. In my business (software), prices may be calculated by the seat, the server or by usage based on functionality accessed by the user. Prices may be promotional in nature with an end-date specified, or they may vary by country and customer status. National account discounts and GSA contract discounts are two common variables.
Price optimization software will ensure that the right price is used in any given situation. Let’s examine some of these in detail.
Price Optimization Software Handles Unit Pricing Variables
Some products lend themselves to specific costs and prices per delivered iteration. When you buy a lawn mower, you see a price for the lawn mower and pay it. But if you are buying landscaping equipment for a school system, you may see pricing based on bundles of lawn mowers. Each school may need two riding mowers and five push mowers, so your pricing may well be based on units composed of two different mower models and seven individual mowers.
Additionally, big school systems will expect some price break for buying hundreds of lawn mowers as opposed to smaller systems that will only buy a few mowers.
Perhaps you are sick of maintaining all of those lawn mowers and having all of the seasonal headcount challenges to contend with. You just want to get the darn grass mowed. You contract with a landscaping service. You might call this Lawn Mowing as a Service (LMaaS).
As a vendor, you will likely want to be able to price your products for all of these options. Price optimization software allows you to maintain multiple pricing models for any products and to select the model used for a given situation.
What we have described in these examples are bundled pricing, volume discounting and service-based pricing. All are commonly needed to adequately address complex markets.
Market Pricing Variables Are a Snap with Price Optimization Software
If you are selling your lawn mowers domestically and also in Europe, the Middle East and Asia, you have special pricing challenges related to floating currencies and local economic and market pressures. These affect the comparative value of your offering on a local basis and also the actual price itself.
Pricing something at say, 150 bucks US, obviously does not mean you charge 150 pesos in Mexico or 150 rubles in Russia. You want to establish a reasonable ratio of dollars to the local currency for each market country in which you operate. Once that is accomplished, you can decide if an additional uplift or downward adjustment is justified.
Price optimization software allows you to maintain multiple national price lists that will serve each market in which you trade. This is transparent to the end-user or customer in ecommerce settings.
Price Optimization Software Facilitates Customer Classification Pricing Variables
Customers come in all shapes and sizes, and the relationships you maintain with some of those customers may be formally structured to reflect their positions in your overall marketing strategy.
Large customers, loyal customers, strategic customers, long-term customers, high-volume customers and other measurable attributes may be reflected in unique pricing plans for each.
Many companies maintain special national account programs for customers that commit to certain sales volumes over time. These commitments are rewarded with pricing discounts and special terms for purchase transactions.
The same is true for prospects in targeted strategic markets. If you are trying to make inroads into the medical market place, qualifying prospects may get special pricing.
Price optimization software will keep all of these pricing variations organized, up-to-date and accessible as needed.
Special Promotional Pricing Variables – No Problem with Price Optimization Software
Back to our lawn-mowing example. Imagine that it is late summer and you have just completed development of your most advanced lawn mower to date. It has great features that you know your customers will love!
There’s only one problem—the mower was supposed to be shipping in early spring of that year, but developmental problems delayed the rollout. Now the mowing season is wrapping up, and the timing for your new product release is awful. Who wants to buy a lawn mower in October?
Marketing to the rescue! You marketing team comes up with a special promotion aimed at all of your registered owners. You offer a flat $50 trade-in allowance for their old mowers and a special introductory price that will only be good through the end of the year.
While this program will surely salvage some of the lost opportunities, it will also add some complexity to the sales cycle. Price optimization software working in conjunction with your CRM solution will clearly identify who has eligibility and who does not.
Price Optimization Software – The Price Is Right
Pricing is complicated. The bigger and more complex the market space is and the more complex the product, the more highly evolved the pricing solution needs to be. Sales reps can concentrate more on selling and less on pricing administration.
Price optimization software delivers the capability required to keep your marketing goals aligned with your business execution processes despite these complexities.
