When it comes to implementing wholesome automation across business units, organizations today need to weigh the pros and cons, and balance benefits versus complexity. As traditional business processes get automated and repetitive tasks are carried out in an autopilot mode, the benefits increase with scale. But then any company can allocate capital and resources only toward a specific set of initiatives at any given point, for better focus and execution. Therefore, the question organizations face is which tasks warrant automation sooner than others?
It’s fair to assume that due to their scale and ubiquity, pricing processes would be the top candidates for automation. And, there is a general notion that companies seeking to implement Configure, Price, Quote (CPQ) software will have to adopt all the three facets of the application. However, we find several companies trying out different permutations. Broadly speaking, four CPQ rollout approaches are prevalent:
- Pricing-only projects
- Configuration and pricing projects
- Pricing and quoting projects
- Full CPQ projects
The first three approaches, on a combined basis, significantly outnumber end-to-end CPQ implementations. Let’s look at each approach in a bit more detail:
Simplistically, pricing involves adding prices and deducting discounts; but it is more than that when you consider additional packages, add-ons, cost analysis, competitor analysis, and so on. It involves calculating manufacturing costs at the onset, as cost models become increasingly complex further along the supply chain. Even the smallest error can potentially impact margins. Moreover, special pricing requests that require higher management approvals also lengthen time frames.
CPQ, with its in-built pricing tools and costing models, is extremely relevant for manufacturing companies where projects typically target improvements in pricing decisions. In such scenarios, maintaining a laser focus on pricing makes sense since configuration and quotation processes are relatively straightforward. Manufacturers who sell standardized products come under this category. Pricing-only projects, in our view, must address four key elements:
- Determine the right price for any transaction: This requires understanding the value of products/services vis-à-vis alternatives, studying competition, and analyzing cost-to-serve. Thus, concepts such as value pricing, customer segmentation and price architecture design are crucial.
- Understand and manage varied market channels: Aligning the value of each channel with one’s incentives is extremely important.
- Ensure price execution on a transactional basis: Companies should engage with customers who are ‘price pickers’ and don’t want any negotiation differently, as compared to markets with negotiated sales. In the case of the latter, a more sophisticated approach like a ‘pocket price corridor’ concept is useful, wherein proposed sales outside the corridor need approvals.
- Track pricing performance: Enterprises can keep tabs on pricing by analyzing common lagging indicators of target price realization, average price trends, competition pricing, etc.
Configuration and Pricing Projects
A ‘divide and conquer’ strategy makes sense for complex product portfolios where cross- or up-selling opportunities exist. Such an approach would suit made-to-order manufacturers, as well as companies offering complex bundles or products with multiple features. Herein, configuration and pricing processes can be separated into connected but discrete projects for maximum impact.
Tools and processes for sales teams to combine products, features and services into customer-specific offers can be customized. Usually, this task can be segregated from pricing. The key elements to understand here are the ones that determine the price; this challenging task requires problem solving, analysis and hypotheses testing. And, these factors are a dynamic combination of product and customer data.
Pricing and Quoting Projects
For complex quoting processes, design quoting that supports price capture makes sense. This approach is apt, for instance, while amending dozens of contractual pages, or when working with large product portfolios. The idea is to optimize the pricing architecture by figuring out elements that sales teams should negotiate. Supplementing this with the overall strategy and value addition, via contract flexibility, is crucial.
However, it’s important to not compromise on pricing. Complex pricing decisions complicate the quoting process, but simple quoting problems can also be managed. If only a minority of customers find complexity in quoting, then pursuing a deal-desk approach involving specialists might be beneficial.
Full CPQ Projects
Usually, more complexity means more opportunities, and more risks. Such scenarios call for end-to-end CPQ projects that would help manufacturers track core quote process metrics. A targeted approach on this front can significantly reduce project costs and risks, while hardly impacting the captured value. We have found that in cases where full CPQ is not attempted, the value capture is still around the 75-90% mark. Hence, adopting a measured approach could be preferable.