Let’s be honest here about your answer to this question: How many of your salespeople stick to your company’s set pricing levels and how many resort to “special” pricing deals on a more than occasional basis?
Come to think of it, when was the last time you were able to raise prices to reflect changing cost levels and actually see that price increase stick?
If you’re not pleased with your responses to these queries, it might be time to consider applying some software to the problem. That’s the proposition from Vendavo, which develops an enterprise business intelligence application that it calls price management software.
According to Vendavo founder Jamie Rapperport (who also acts as its executive vice president for marketing and business development) businesses often miss out on the opportunity to improve their operating profit because their price for a specific offering or service fails is too one-dimensional and doesn’t account for variables such as the cost to produce the product or service for which a price may be negotiate or the cost of service for a particular type of customer. This challenge is compounded by the fact that salespeople are compensated for generating more revenue, while others within your company are busy managing the cost of those sales. These two concerns can sometimes be mutually exclusive. Sure, some products from your organization may be loss leaders, but isn’t it better that this strategy be intentional and not accidental?
Here’s the company’s broad discussion of the implications of price management, including the rather compelling McKinsey research finding that a 1 percent incremental increase in the price your company is actually able to garner for a product could produce a 10 percent increase in operating profits. You can also download an AMR Research report on this topic, but you’ll have to register to do so.
The software sold by Vendavo accounts for all the variables that your company probably already tracks in excruciating detail but that it often fails to use, consult or analyze in any kind of prescriptive way. It considers 25 to 30 different elements that could impact pricing levels; if your company owns research services that gather industry-related data, this can also be fed into the application.
Vendavo currently claims about 60 global companies as its customers, including the likes of IBM, Chevron, Dupont, Dow and Michelin. Although it is cagey about disclosing how these business are using the software, exactly, Rapperport says one customer turned to Vendavo after discovering that its sales team was passing through virtually none of its routine price increases. By providing the team with access to the rationale behind increases through the Vendavo dashboard, the customer was able to dramatically change the pass-through and it wound up earning more than a 3 percent incremental return on revenue.
Not surprisingly, Vendavo has taken a rather unique approach to its enterprise software pricing. Rapperport says your company will pay a percentage of the incremental return on sales that you’re able to produce using its software. The company estimates that its customers will earn, on average, an incremental return on sales of between 1 percent and 3 percent.
What’s on your brain? Reach out to me at heather@heatherclancy.com with a smart management idea that worked or an approach you think others should emulate.
