Future of Pricing Webinar Summary
Gabriel Smith, VP for Product Strategy at Price f(x) with over 15 years of experience in pricing, discussed with Chris Herbert, President of Silicon Valley Pricing, the future of pricing industry, trends that shape it and the latest developments on the market. Here is a short summary of what Gabe and Chris spoke about.
They opened their discussion with a simple statement: commerce revolution is happening. In B2B and in B2C the digital commerce is growing fast and the distinction between the way B2B and B2C business is fading. More and more vendors are going directly to customers, skipping the channels of retailers and distributors. Why? Research proves that customers have higher willingness to pay if they do business directly with the vendor than with a distributor. Distributors therefore must add a unique value (such as improving and simplifying the buying experience, using fulfillment methods based on a unique industry knowledge) or they lose the race.
|An example showing how distributors fight with this trend is Walmart – over half their online purchases are picked up in stores. They benefit logistically from the large base of physical stores.
The same trend can be seen at a leading consumer electronics retailer in Europe which had to overcome the internal competition between brick and mortar and online sales by explaining shop managers to concentrate on shopping experience, finding new ways to engage customers and innovate the sales approach.
Gabe argued that B2B is far beyond the B2C. B2B must learn from B2C and retail, which are more sophisticated in terms of pricing, optimization, and data work. On the other hand, B2B has transparency and more rough data but must undergo some more learning to leverage that for their profit.
Chris and Gabe explained that the successful presence on multiple channels is undermined by understanding all paths that customers undertake to make a purchase. Considering all stakeholders is vital but may cause conflicts between them. You can’t sell to your biggest customer for a higher price than they see when they go online; you must stay consistent.
As Gabe optimistically put it:
Don’t be scared to innovate because of the channel conflicts. The basic principle in today’s commerce could be summed up as ‘add value or perish’. If the channel is not bringing profit, don’t be afraid to leave it.
|Too many companies are afraid to try new roads to markets because they fear upsetting their established distributors or channels. It makes sense but if you don’t do it, somebody else will.|
Align process, people and systems. Companies have multiple processes set within different systems. If someone has an omni-channel strategy and has the alignment in teams and processes, they also must have it synchronized from the system (SW) point of view.
- Omni-channel depends on the industry you’re in. If you’re selling directly to customers, you make more money, and if they’re prone to pay you more than to distributor –that’s straightforward.
All kinds of companies are experimenting with this scheme. Moving from ‘Software as a Service’ to ‘Value as a Service’ is a big trend these days and pricing professionals play here the role of proponents of value based pricing. We see companies and small pricing teams to increase the overall pricing and shifting to subscription model – they’re taking away the “sticker shock”. In the end, they make you pay more and you feel happy about it.
Sales Reps Are Dying Breed
Gabe came up with this interesting quote and continued to explain that the most simplistic explanation of a sales representative’s role is ‘order taker’. People don’t generally want to purchase through a sales person and prefer online channels. The current trend is to have simple buying paths, online pop-up windows with call to action, simple billing, product micro-sites etc. There’s no need for a real person to approach you and sell to you directly.
Both Gabe and Chris agreed that now it is a very interesting time for pricing professionals. It’s demanding though – a pricing specialist must face challenges from many systems and processes, must understand what customers value and package these things into one consistent pricing approach. With a subscription model, many new user cases rise, such as renewals, usage packages, upgrades etc.
This trend is mirroring in many industries, pricing included.
Dynamic Pricing: AI and Machine Learning
The next big topic was artificial intelligence and machine learning driven dynamic pricing. Gabe started with some definitions. Anything we think that a computer can do we can refer to as artificial intelligence (AI). Machine learning (ML) is a subset of AI, including statistical techniques and algorithms – used also in price optimization. These algorithms make optimal pricing decisions in real time and so they help a business increase revenues or profits. Gabe noted that ML has proven success but it’s not suitable for any company.
|You cannot deliver the right results with the wrong data. Dynamic pricing has become more and more tables takes in a lot of industries. To succeed without any advanced price optimization is like bringing knife to a gun fight.|
Gabe had an interesting story to illustrate this topic:
We have a customer competing against a company that used algorithmic and dynamic pricing. This customer ended up implementing our solution and started competing with them also using algorithmic and dynamic pricing. Thanks to this they uncovered a trend when their competitor was dropping a price at 4:30 pm every Friday. They would drop their prices and captured the sales over the weekend and raised the prices on Monday morning 8 am. When our customer discovered this, they could respond appropriately (dynamic matching of pricing etc.) and their competitor didn’t even know what hit them. Implementation of the right tools saved our customer a substantial portion of sales.
Hearing this, Chris wanted to know how Machine Learning can help companies build a segmentation model. Gabe explained that ML comes up with data-driven recommendations by looking at different dimensions and how those influence a willingness to pay. However, there’s still need for pricing and data science, it shouldn’t be entirely data-driven. This aligns with the recommendation to use Price f(x) as a framework tool to have things done faster and have more self-improving model.
What this means for pricing solutions is that the solution must be broad and deep to capture the omni-channel complexity. The key factors here are data openness and integration with the ERP systems.
What the Future of Pricing Will Be? It’s Marketing!
- Today, finance and marketing are almost tied. 10 years ago, it was all about finance, price setting by cost+ method etc. Now all the data are sitting in the marketing teams.
- What follows is that the current pricing professional is reactive, working off past data, dependent on Excel and wastes resources on creating reports, finding problems and long approval times.
- In contrast, the future pricing expert must be proactive, understand what the customer wants, make real time decisions and master data analytics, use resources to solve problems and employ dynamic pricing.