Unlock Hidden Profits Using effective Pricing strategiesActive Price MAnAgeMent And Price OPtiMizAtiOn

SAP Thought Leadershipcustomer relationship Management

As companies begin to emerge from the worldwide economic downturn, one fact has become abundantly clear: the business practices that companies have relied on to survive the last several quarters are no longer sustainable.

4 Executive Summary

5 Grow Revenues While Protecting Margins

5 respond Quickly to Factors that Affect Price

6 employ transaction-Level Profit Analytics to improve Margins

6 Assume cost-to-Serve charges Only for Your Best customers

6 Set More granular Pricing Based on Well-defined Segments

6 control “Maverick” Selling by enforcing Pricing Strategies

7 Comprehensive Pricing Clarity from SAP® Software

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in order to leverage price management and optimization to drive profits, com-panies should adhere to the following best practices:• Fine-tune prices for all products and

services to meet the latest competitor challenges and market conditions

• Analyze historical and live transaction-level data as well as data already residing in your enterprise solutions to gain insight into profits and improve margins

• Develop and implement effective cost-to-serve strategies to pass charges on to customers based on their customer class and their profit-ability impact

• Establish well-defined customer segments that take into account diverse attributes in order to set more granular, segment-specific pricing and guidance

• Empower your sales force with rich, detailed customer information about profitability potential, product require-ments, and purchase history, and enforce negotiation policies that include target prices, price floors, and sale approvals

this paper explores these concepts further.

execUtive sUmmarythe POWer OF SMArt Pricing

today, companies must adopt more innovative strategies to increase revenues while protecting their margins. Smart, stra-tegic pricing is a criti-cal lever to help you get there; but more often than not, sales and marketing profes-sionals fail to recog-nize pricing as a key business priority.

today, as companies begin to emerge from the global economic crisis, they must turn to the most effective yet overlooked driver of profits: the active management of pricing. companies that transform pricing from a tactical process to a strategic one can reap tremendous financial benefits.

4 SAP Thought Leadership – Unlock hidden Profits Using effective Pricing Strategies

Respond Quickly to Factors that Affect Price

in today’s highly competitive markets, failure to be highly attuned to changes in prevailing prices can cost you sales. But too often, companies follow a path of least resistance by keeping prices static regardless of market conditions. that’s why you must effectively respond to the latest competitor chal-lenges and changes in market condi-tions that can impact the price of any of your products and services. You also need the ability to communicate timely pricing information across all of your sales channels – including your own sales force as well as dealers and retailers – so they have the latest, best offer in hand.

As companies begin to emerge from the worldwide economic downturn, one fact has become abundantly clear: the business practices that companies have relied on to survive the last sever-al quarters are no longer sustainable. Adverse economic conditions that include dramatic volatility in energy and commodity prices, significant turmoil in the financial markets, and a strong downward pressure on product prices have sharply eroded the profits of com-panies across industries. to curtail the rapid diminishing of profit margins, most of them have taken the usual fall-back position: reducing the workforce, forgoing new investments, or consoli-dating operations.

Although these actions may be effec-tive in the short term, the long-term implications are severe and can lead to significant margin compression and profit loss. it’s time to move away from a survival mode that maximizes reve-nue regardless of overall impact. today, companies must adopt more innovative strategies to increase revenues while protecting their margins. Smart, strate-gic pricing is a critical lever to help you get there; but more often than not, sales and marketing professionals fail to recognize pricing as a key business priority.

the fact is that leading companies have made the investment in a sound pricing strategy and achieved success as a result. these companies have realized substantial margin improvement because their new pricing model is driv-en by organizational leadership that revamps pricing processes and employs pricing software to support the new processes.

to take full advantage of smart pricing to grow profits throughout the long economic recovery ahead, you must elevate price management and price optimization to the highest levels of your organization. You must also shift from tactical to strategic pricing practic-es. By following the five best practices described in the following sections, your company can employ pricing poli-cies that help you protect margins even in the most challenging sales environ-ment and emerge as a competitive leader.

grow revenUes wHile Protecting marginsBeSt PrActiceS thAt trAnSFOrM Pricing intO A cOMPetitive AdvAntAge

5SAP Thought Leadership – Unlock hidden Profits Using effective Pricing Strategies

Employ Transaction-Level Profit Analytics to Improve Margins

the best way to identify margin improvement opportunities is to ana-lyze the profitability of your individual customer transactions and deals. Most companies fail to do this because they analyze profitability at aggregate levels – by division, region, or sales channel. they also fail to effectively leverage the transaction and deal data that already resides in their customer relationship management systems in order to support improved pricing and deal negotiation. By using analytics that incorporate historical and live transaction data, you get visibility into actual profitability. For example, you can determine if discount policies were consistently applied across deals or if surcharges such as freight were recovered effectively. Armed with these insights, you can make informed decisions on whether

certain deals make strategic sense despite their low profitability or if corrective action needs to be taken.

Assume Cost-to-Serve Charges Only for Your Best Customers

Most companies use a one-size-fits-all approach with customers. they do not identify those highly profitable customers with a greater potential for future business. in fact, companies often universally apply and assume cost-to-serve charges such as expedited shipping, technical service, or product support services. these costs are seldom recovered, and the result is significant and unnecessary margin erosion. By taking a critical look at how your cost-to-serve charges are applied – distinguishing between strategic and opportunistic buyers – you can absorb these costs only for your most highly profitable customers.

Set More Granular Pricing Based on Well-Defined Segments

Most companies today ignore the differences in how the value of their product is perceived across different segments of the customer base by imposing a single pricing policy that applies to all of them. For example, a particular product might be a critical input for an automobile manufacturer, but the same product is important but not essential for a chemical supplier. By failing to adjust prices based on customers’ end-use application, companies can overlook opportunities for improved margins. to ensure that your pricing reflects well-defined customer segments, you must fine-tune those segments based on key attributes including the customer’s application and ability to absorb the price change, and the criticality of the customer’s need.

Control “Maverick” Selling by Enforcing Pricing Strategies

Most sales teams lack the insight needed to make price decisions that can build buyer loyalty while improving profits. Often, discounts granted by sales reps are driven more by the indi-vidual relationships than by knowledge of the customer’s actual profitability, product requirements, purchase history, or future sales potential. this “maverick” selling can result in dramatic variance in margins across similar deals as well as low or even negative margins. Your ability to enforce policies for target prices, price floors, and sale-approval levels can ensure that your sales team’s negotiations consistently support enterprise goals.

to take full advantage of smart pricing to grow profits throughout the long economic recovery ahead, you must elevate price management and price optimization to the highest levels of your organization. You must also shift from tactical pricing practices to strategic pricing practices.

6 SAP Thought Leadership – Unlock hidden Profits Using effective Pricing Strategies

to support a pricing strategy at this level, you need enterprise-wide visibility that brings together all the various drivers that come into play. that requires a complete, proven pricing solution that incorporates the latest in pricing science and best practices. With the SAP® Price and Margin Management application by vendavo, you can align your pricing priorities with your broader business objectives, taking into account your particular markets, competitive environment, existing pricing process, and immediate challenges.

the application helps you achieve a high return on investment at the lowest total cost of ownership. this is achieved through a flexible and scalable architecture with intuitive user interfaces, and strong integration with enterprise solutions – including the SAP erP application. the software consists of four components that help you at every stage of the pricing process and yield more profits on every transaction, including:• Price and margin analytics – identify

margin improvement opportunities by deriving insight from customer and deal lifecycles, revenue and margin causality, role-specific dashboards, and threshold-based alerting

• Price optimization – Set optimal prices and guidance across segments using patent-pending algorithms that leverage data across applications to identify customer segments that improve price realization and increase profits

• Price setting and administration – improve price responsiveness to market changes across your entire organization using price-setting and administration tools that account for thousands of SKUs and millions of price points

• Deal execution – negotiate deals consistently and profitably by arming your sales force with up-to-date contextual analytics, customer trans-action history, peer-group compari-sons, profitability scenarios, approval workflow, and mobile device connectivity

Find Out More

to learn more about SAP Price and Margin Management, contact your SAP representative today or visit www.sap.com /solutions/solutionextensions /pricemarginmgt/index.epx.

comPreHensive Pricing clarity from saP® softwareUSe A PrOven SOLUtiOn tO Achieve PrOFitABLe reSULtS

You must effectively respond to the latest competitor challenges and changes in market conditions that can impact the price of any of your products and services. You also need the ability to communicate timely pricing information across all of your sales channels – including your own sales force as well as dealers and retailers – so they have the latest, best price.

7SAP Thought Leadership – Unlock hidden Profits Using effective Pricing Strategies

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