Robert Kugel's Analyst Perspectives

Vendavo recently held its annual Profit Summit, a combination of a user group conference and a forum for covering evolving trends and techniques in business-to-business (B2B) pricing. Especially in emerging categories like pricing and revenue management, this sort of event provides an opportunity to assess the state of the market and the maturity of the applications. As I’ve noted, adoption of price and revenue management software has been slow in the B2B segment of commerce due to multiple obstacles. The challenges include change management, as well as data and process issues.

Limited attention to measuring profitability has contributed to these challenges, as our Office of Finance benchmark research shows. Only 29 percent of companies reported routinely assessing product profitability, and 26 percent said they analyze customer profitability. Only 15 percent of organizations reported applying price optimization of any sort. This lack of focus on measuring product profitability and the tendency not to include customers as part of the “the numbers” that organizations use in their management reviews have impeded adoption of price and revenue management. Limited measurement is partly a reflection of a lack of coherent ownership of profitability in companies; often, people are responsible for revenue and for cost management but not the net result.

Price and revenue management is a discipline that companies should apply throughout the opportunity-to-order cycle, alongside the intermediate steps of configure, price, quote and contract. Vendavo’s software enables companies to analyze and optimize pricing and then manage the process of creating and approving proposals and deals. Over the past year the company added refinements to each element of its product portfolio, improving usability and enhancing features. Reflecting the maturing of this software category, earlier this year the company rolled out its Packaged Solutions approach – cloud-based versions of its software that are preconfigured for role and industry. The company said its objective is to have customers up and running within four to five months, enabling faster time to value. The cloud is well suited to the deployment of price and revenue management software. Implementation and maintenance costs can be lower and, compared to on-premises deployment, it is almost always less expensive to have access to elastic computing resources that can handle intermittent resource requirement spikes, which is common for the application of predictive analytics to complex data sets.

At the event the company announced its partnership with Entomo to offer Vendavo Incentive Manager. Implementing a price and revenue management strategy is most effective when used with sales incentive compensation software that drives desired behaviors. Tight integration between the two pieces of software is important because it enables companies to align and integrate sales incentive data with the quoting process. Compensation management software also allows sales executives to more accurately forecast the cost of incentive compensation plans, reducing the risk of higher-than-expected costs and enabling quick adjustment of incentive plans to adapt to market conditions.

The event took place against the backdrop of important trends in B2B commerce that increasingly will drive demand for price and revenue management software. Companies need to present an optimal price to customers – the one that offers the best trade-off between a maximum margin and the probability of closing the sale – as quickly as possible. Here speed wins and doesn’t necessitate a sacrifice in margin. Software that manages the opportunity-to-order cycle can improve sales execution by providing sales reps with a uniform process structure as well as information that enables them to quote with greater confidence. Also, B2B sales strategies increasingly need systems that can handle multichannel commerce with a unified approach. Finally, product companies will be using digital technologies to offer customers ongoing subscription services to boost revenues and, they hope, achieve an ongoing positive relationship. Software that speeds up the configuration and pricing of these bundles helps price these complex product and service offerings more successfully.

Keynotes and sessions at the Summit highlighted how Vendavo’s customers have successfully addressed the ongoing pricing challenges that companies face. Adopting a price and revenue management discipline requires sustained, senior-level focus because it is a company-wide, cross-functional effort.

Pricing strategies abound in most companies, so defining a coherent company-wide, customer-focused strategy and deciding who “owns” pricing, usually a cross-functional team, is a key precursor to success. Discussions also emphasized that getting the sales force to buy into any pricing initiative is crucial. For this reason, early, ongoing involvement and effective training are essential. The pricing process must be transparent as well. Sales reps won’t buy into a “black box”; they need to understand and accept the logic of how the system works.

Events such as the Profit Summit are advance the price and revenue management software category. Especially in earlier-stage software categories, practical advice from organizations that have achieved some success is useful, especially for those still in the buying process, as is developing peer relationships between companies. The biggest threat that Vendavo and similar vendors face remains the urge to do nothing. Successful market leaders must be convinced they could become even more successful and profitable by managing their pricing more intelligently; companies that hesitate because they are risk averse ironically risk witnessing the success of their peers from the sidelines.

I recommend that all B2B companies review their pricing processes and strategy to assess the degree to which price and revenue management software can help enhance their profitability, grow revenues or both. Software that manages the opportunity-to-order cycle, especially the configure, price and quote segment, can enable more consistently effective sales execution. A related type of software for price and revenue optimization can provide more intelligent pricing guidance, preventing unnecessary margin leakage and allowing agents to focus attention on more strategic customers and achieve sales targets more consistently. As part of this strategic pricing review, I recommend investigating software vendors that can provide capabilities that support a new approach. Any such vendor list should include Vendavo.

Regards,

Robert Kugel

Senior Vice President Research

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