Many pricing applications have the ability to create rules that mean an approval is needed if prices go beyond certain ranges. Whilst approvals help manage pricing, it is important to understand what they are trying to achieve and which applications best support this. In this article I’ll talk about some of the reasons why pricing applications and approvals are set up, the implications of different approval levels and the importance of selecting the right tool to manage this.
Pricing applications can create a bridge between management and sales reps that can help improve margins through better pricing. However the way the applications are used to achieve this can vary.
One way is to give sales reps access to the best data to do their jobs. This means that when they visit a customer they can instantly view the customer’s sales; who has a role in purchasing decisions; their purchase history; what they paid; and where their prices sit comparatively in the marketplace.
Another way is when management want the application to create greater visibility and control over sales reps’ behaviour. Reasons for this can include:
- They want to introduce safeguards such as setting pricing floors that stop reps from reducing margins to unacceptable levels;
- The company wishes to embark on a strategy that requires reps to price in a certain way e.g. they are no longer interested in operating in certain markets and would like to set prices that either generate large margins, or lose customers;
- They want to create a more data driven pricing model. Here they will leverage the rich data sources that exist around sales and pricing to create a model that defines the optimal price for each product and/or customer. Reps are then asked to sell at the calculated price.
It is important to note that the reasons listed will create different levels of control over a rep’s behaviour. These controls are normally enforced through pricing floors and approval processes that are built into an application.
These levels of control can restrict a rep’s freedom to do their job and may mitigate some of the benefits they bring to a sale through their knowledge and customer relationships. Strengths they bring to a deal that may not be fully captured in a pricing application include:
- The relationship that the rep has with a customer. There can often be a level of trust here that is built up over time and makes it easier to agree to flexible yet profitable deals;
- How well does the rep understand the market and what the competition is doing? Are they aware that the customer is wedded to their product and will therefore pay over the average price or do they know that the customer is happy to buy from elsewhere unless the price comes down?
- How aware are customers of the price paid by other customers for the same product?
- What volumes are they expecting the customer to purchase so they can access a given price point and are these volumes actually being bought?
So whilst pricing applications can be used for different purposes, it’s also important to understand the role of the reps in the sales process. The challenge is leveraging the strengths of the sales reps and pricing application whilst introducing the required levels of control to implement the chosen strategy.
The reason for using a pricing application dictates the level of approvals needed. However it’s also important to understand the importance of selecting the right pricing application to support this.
Whilst reps may find it frustrating to be pushed into certain pricing behaviours, they will be more constrained by having to use tools that are unintuitive, slow and unwieldy. If approvals are needed, then a good application will create clarity around this, whilst making sure that sales requiring approvals are signed off in the quickest possible time. Using the correct application means that reps often feel that the restrictions of approvals are offset by gains made from understanding who has to approve a price and why. Combined with other benefits from a pricing application, such as customer and product information, it’s usually possible to increase the level of pricing control whilst not materially constricting a rep’s ability to sell.
In conclusion, pricing applications are often a bridge between management and sales reps. To utilise this bridge, management must understand what they are trying to achieve from a pricing application, the implications for reps and customers of using it in a given way and the importance of selecting the right tool to achieve their goals.
Angus Urquhart (Senior Consultant, Price Align)