Pricing strategy and CPQ, powerful levers in the face of inflation

Reading time : 7 min 6s
sarlaud@itcelerator.fr

10 October 2023

As inflation continues to break records worldwide, manufacturers and retailers are facing major challenges to ensure their profitability and competitiveness. The price rises needed to offset raw material inflation and maintain a constant gross margin far exceed the traditional 2-3% annual increases practiced before the crisis, reaching levels that are difficult for buyers to tolerate/absorb.

In this context, the strategic approach to pricing proposed by CPQ (Configure, Price, Quote) has established itself as an essential solution for companies wishing to optimize their pricing process.

CPQ represents a set of technologies and practices that enable companies to design customized offers, set fair and competitive prices, and generate accurate quotes in real time. In this digital age, where customers are better informed and more demanding than ever, well-managed pricing can make the difference between a company’s success and stagnation. Backed by data science and artificial intelligence, CPQ becomes a major and powerful lever in your company’s sales strategy.

Pricing strategy, an essential component of a CPQ solution

Pricing is an essential aspect of quotation and sales management, and can have a significant impact on the profitability and growth of a company, whatever its size or sector.

CPQ (Configuration, Pricing and Quotation) is a software solution that automates and simplifies the process of configuration, pricing and quotation creation for customizable products or services, enabling accurate pricing and rapid quotation generation.

The significant advantages of CPQ in the pricing strategy :

Margin maximization :

  • By using a CPQ solution to manage pricing, you can carry out an in-depth analysis of production costs and margins for each product or service.
  • By identifying the products or services with the highest margins, you can focus your sales efforts on them, increasing your overall profitability.
  • Automated pricing also reduces human error in pricing, ensuring that every product is correctly priced.

Reduce human error:

  • The use of a CPQ eliminates the risk of human error in product pricing. Price calculations are automated and based on predefined rules, optimizing the entire sales process and reducing costs.
  • This ensures that the quotes generated are accurate and consistent, reinforcing the company’s credibility with customers and partners.

Management of discounts and promotions :

  • CPQ systems enable efficient management of discounts and promotions according to predefined rules.
  • The CPQ offers an approval workflow based on margin, quote total, and other criteria to be defined, to provide security in terms of possible margins. If a quotation is rejected, the sales contact will have to rework the proposal according to the approver’s comments.
  • This workflow has the advantage of setting up a delegation system. For example, a quotation will not be blocked because an approver is absent, thanks to a list of delegates or alternates. This speeds up the approval process considerably.
  • This precise management of discounts avoids inconsistent or excessive offers that could reduce margins.

Adapting to market fluctuations :

  • Companies need to adapt quickly to market fluctuations to remain competitive. A CPQ makes it easy to quickly update rates in response to changes in demand, competition or costs.
  • This allows us to maintain competitive prices while preserving profitability.

Offer customization :

  • CPQ systems make it possible to tailor offers to specific customer needs.
  • This can help convert prospects into customers by offering tailor-made solutions.

Consideration of WTP (Willingness To Pay) – value perceived by the customer :

  • WTP provides valuable information on customers’ price sensitivity. However, CPQ goes beyond this by enabling dynamic and accurate pricing based on this data. CPQ projects use WTP as one of many factors to generate customized quotations, aligned with the expectations of each customer or customer segment. This approach enables companies to maximize their margins while maintaining their competitiveness in the marketplace.
  • CPQ offers the ability to integrate this information into automated pricing processes. This ensures practical, responsive implementation of strategies based on customer-perceived value. By combining WTP with CPQ, companies have a powerful tool for balancing pricing with customer price sensitivity, while optimizing profitability.

Performance analysis :

  • The data generated by a CPQ provides valuable information on pricing performance.
  • This enables the company to identify the most effective pricing strategies and adjust those that aren’t working.

Managing complexity :

  • In companies offering a wide range of products or services, pricing can become complex due to the many variables involved. CPQ systems simplify this complexity by automating pricing calculations and rules.
  • This ensures that every quote is accurate and in line with the company’s pricing strategy.

Profitability monitoring :

  • CPQ systems provide real-time data on the profitability of each offer or transaction.
  • This enables the company to make decisions based on tangible data to maximize profitability.

Sales team alignment :

  • Consistent, transparent pricing facilitates collaboration between sales, marketing and management teams.
  • Online help is available to guide sales staff in choosing product combinations. CPQ can define rules that prevent certain products/services from being sold together, or that automatically add products that must be sold together.
  • Teams are better informed about prices and margins. This promotes effective communication with customers.

Regulatory compliance :

  • CPQ systems automate tariff calculations, while taking current regulations into account.
  • This reduces the risk of non-compliance with taxes, customs duties and industry regulations.

As emphasized in the Mc Kinsey report “Winning the race with inflation”, to remain competitive, manufacturers need to work on the powerful lever of pricing, by implementing an effective, cross-functional strategy and processes: > Decompartmentalize pricing, sales and procurement teams to avoid margin leakage. > Align these teams using a common tool that centralizes data in real time, enabling price optimization while maximizing margins.

Source: McKinsey 2022 study

A CPQ solution at the heart of your pricing and global strategy

Companies of all sizes and in all sectors are facing increasingly complex challenges to remain competitive and profitable. Pricing, as an essential strategic component, plays a major role in achieving these objectives. Whether you’re looking to increase profitability, improve sales performance or enhance the customer experience, pricing can help you achieve these goals.

In an ever-changing business landscape, companies need to be agile, responsive and customer-focused. Effective pricing, supported by a CPQ solution, gives you the ability to meet these demands with precision and confidence. This translates into improved profitability, more efficient sales management and greater customer satisfaction.

Pricing in a CPQ project is not a solution in itself. It is a powerful tool, and must be integrated into an overall strategy.

Companies that invest in a CPQ platform and implement efficient pricing processes are well positioned in an increasingly competitive world.

Data Science and AI to optimize your pricing strategy

Using advanced machine learning algorithms, CPQ analyzes massive volumes of data, including sales histories, customer buying behavior and market trends. This analysis identifies patterns and correlations that are difficult to detect using traditional methods.

Thanks to data science, CPQ can assess the price sensitivity of different customer segments and specific products. It takes into account WTP (Willingness to Pay) by combining this information with other relevant data. The result is accurate, dynamic pricing that adjusts in real time to market fluctuations and customer preferences.

Artificial intelligence enhances this capability by providing price recommendations based on predictive models. These models take into account factors such as demand, seasonality and production costs to determine optimal prices. AI can also suggest special offers, discounts or customized promotions to maximize sales while preserving margins. By combining advanced data science analysis with AI recommendations, CPQ enables companies to set competitive prices, optimize margins, personalize offers and adapt quickly to market changes. It is an invaluable asset for any company wishing to remain competitive and profitable in a constantly changing business environment.

Supporting you in your CPQ and pricing strategy

The importance of pricing in a CPQ project is undeniable, but implementing it requires the appropriate expertise and resources. ITCelerator can help you implement your project.

We understand that every business is unique, with its own challenges and opportunities. We are committed to working closely with you to develop solutions tailored to your needs. Our team of experts has extensive experience in CPQ project implementation and pricing management. This enables us to guide you every step of the way.

As your trusted partner, we work closely with you to:

  • define effective pricing strategies
  • automate pricing processes
  • train your staff to use CPQ systems
  • continuously monitor the profitability of your offers.

Our ultimate goal is to help you achieve your business objectives while optimizing your margins.

Pricing in a CPQ project is a powerful tool for improving profitability, competitiveness and customer satisfaction. When you combine this approach with our expert support, you have a winning combination for achieving your growth objectives.

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