eBook: Decision Complexity in B2B

Make Your Numbers™ ©2013 Zilliant Incorporated, All Rights Reserved Worldwide

With over 20 years of experience, Barrett has helped

businesses with complex negotiated environments

achieve rapid and effective margin improvements.

Having delivered optimization solutions in industries as

diverse as semiconductor manufacturing and building

materials distribution, there are very few pricing

challenges Barrett hasn't encountered and solved.

©2013 Zilliant Incorporated, All Rights Reserved Worldwide

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Barrett Thompson

GM, Pricing Excellence Solutions

Table of Contents A. Untangling the Sources of Complexity B. Causes of Massive Complexity C. Unmasking the Character of Complexity

a. Overwhelming and Unfeasible Volume b. Critical But Hidden Nuances c. Coping via Myths

D. Humans are Error Prone E. The Silent Suffering of Your P & L F. Sound Like Anyone You Know? G. Take Action Today

http://www.linkedin.com/in/barrettthompson


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Over the past decades, modern B2B enterprises

have done a marvelous job managing complexity

in their physical operations by taking advantage of

new technologies. Yet for these same businesses,

a massive new complexity remains unaddressed.

This new complexity faced by B2B companies is

called DECISION COMPLEXITY, and nowhere is it

more evident than at the intersection of sales and

pricing.

Profit improvement through better pricing springs from one simple idea: That different

selling circumstances can command different prices in the marketplace even for the same

customer and product. Most companies offer variable pricing, but few are managing this

complexity with the expertise and confidence required to get ahead.

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Three major trends are responsible for the

exponential growth in DECISION COMPLEXITY within

B2B.

First, the size of product catalogs and customer lists

has grown rapidly, creating more questions for sales

teams.

Second, go-to-market methods are increasingly more diverse. Channels, promotions

and price types continue to expand, along with ambiguity about how to price them.

Third, volatility of costs, demand, prices and competitive behavior within the market

add a layer of dynamic uncertainty to the landscape. It’s simply impossible for your staff

to keep up.

VOLATILE ROAD

AHEAD

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Overwhelming and Infeasible Volume

There are so many decisions to make, perhaps far more than is realized by those not on

the front lines.

A B2B business with 125,000 SKUs and 40,000 customers has a decision matrix of roughly

5 BILLION potential price decisions that could arise. In practice, it will make nearly 9

MILLION PRICE DECISIONS DURING THE YEAR. And the rate of growth in these

complex decision points is accelerating each year as the business serves more customers,

expands the product catalog, and responds to more volatile market conditions.

Market dynamics have resulted in a huge

proliferation of complex decisions that is

best described as a perfect storm of

Size, Subtlety and Myth.

Critical But Hidden Nuances

There are many valid influences which

should affect the price decision each and

every time, and some which shouldn’t.

Today’s B2B markets are highly

dynamic and understanding the correct

set of influences to apply is a constant

moving target. But your business won’t

wait for you to play catch-up – you need

the best answer fast.

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With price optimization, we are more responsive to the tens of thousands of customer quote requests we receive each month, and do a better job keeping our prices in line with market dynamics. ”

“

Kristin Johnson-Holz, VP of Marketing Schneider Electric NA

The price influences active in B2B sales

can span a wide range:

• Product attributes

• Customer circumstances

• Order characteristics

• Market trends

Identifying which influences actually

make a difference in price, and

quantifying how much they matter, is

subtle and far beyond the capability of an

unaided person.


Typically the most critical part of

setting prices is overlooked – the

combined impact on the P&L from each

individual price decision. That’s very risky.

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Coping via Myths

Faced with the overwhelming size and subtlety of managing MILLIONS of complex

decisions, many people fall victim to myths. One common myth is that each customer

shows the same price sensitivity for every product he purchases whenever he

purchases it.

Experience in dozens of pricing implementations confirms just the opposite – an

individual customer will have varying sensitivity to price for each specific product he

buys. Shouldn’t your prices reflect that?


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When making MILLIONS of complex price decisions

every year, your employees introduce price errors

without knowing it. The price they actually charged

doesn’t match the price they could have charged, to

still win the business.

This is not a shock – no human could possibly

evaluate all the relevant influences, identify the truly

important ones and balance them in just the right

way to make the best possible decision each and

every time.

Compounding the complexity, many different people are making pricing decisions in your business, each with varying degrees of knowledge about the market and your P&L objectives.

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The most common pricing error in B2B is underpricing due to the increased pressure

to win business and meet quota. While the impact of underpricing just one transaction

may seem small, the cumulative impact across MILLIONS of transactions is very large.

In a well-known study cited in The Price Advantage, for the top 1,200 global companies

in aggregate a …


… IMPROVEMENT IN THE AVERAGE

PRICE RECEIVED WOULD YIELD NEARLY

IMPROVEMENT IN GROSS PROFITS.

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Many companies acknowledge the

potential power of price, yet are afraid

to raise their prices because they don’t

have accurate predictions about what

will happen to their P&L.


Price is an incredibly powerful lever to

improve profitability. The cumulative

impact of pricing errors is so significant

that if you don’t stop them, profits gained

elsewhere in the business can be

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Some issue general

guidance to “get

prices up” but then

abdicate to the field,

who habitually price

the business into

well-worn

grooves such as

cost-plus 20%.

completely wiped out

on the P&L.

Ignoring pricing

errors puts a huge

drain on financial

performance and

puts your business at

risk.

B2B companies will continue to see growing DECISION COMPLEXITY as a result of

increasing product portfolios and customer counts. This underlying complexity is

magnified many times over as you attempt to price your products into increasingly

dynamic markets. This complexity is one of size and subtlety – MILLIONS of decisions to

be made, and many contributing factors which should influence the decision outcome.


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What influences matter, and by how much? What is the best and fastest

Advances in predictive algorithms can

equip B2B companies to handle the

millions of accurate pricing decisions

required in the field.

• Business users bring their expertise

around current objectives and price

strategies.

• The price optimization engine calculates

better selling prices across the entire

business.


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The forecasted margin and revenue impacts of these prices are known before enacting

price changes, and unlimited scenarios can be created and compared to arrive at the

best overall prices. This combination of “EXPERTS + EQUATIONS” ensures you’re

setting scientifically accurate price points that are aligned to your business goals.

Contact Us Today to

Learn How to Better

Manage Your Decision

Complexity

mailto:[email protected]


Zilliant provides B2B companies with data-driven guidance, enabling smarter pricing and sales decisions to help businesses make their numbers. The Zilliant optimization platform uses advanced science in its price optimization applications to enable companies to overcome the massive complexity in their businesses. Our flexible SaaS model allows customers to quickly and confidently improve their financial performance by integrating into existing systems and processes. Learn more about how Zilliant helps companies price more profitably and sell more effectively at www.zilliant.com.

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Date post:	11-Nov-2014
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