Manufacturers are leaving money on the table by not paying attention to bringing more accurate and timely pricing into their quotes.
In discussions with dozens of manufacturers, a simple truth emerges: quoting systems, even the most manual, are the lifeblood of any sales pipeline. Pricing has become both the competitive weapon of choice and in many industries however, the last differentiator in several consolidating markets.
With such a critical role in defining profitability, pricing is getting much attention this year, from the CEO level down.
Amazingly even CIOs who have at times fought re-defining selling systems in favor of spending IT money and time on consolidating ERP systems, databases, or portals, are being driven to make selling systems a priority by CEOs, Sales VPs, and General Managers who all see margin being sacrificed due to pricing inaccuracies and disconnects on quotes. The combination of accurate pricing and quoting is emerging as a priority in 2006, and it's because so many manufacturers realize that thousands if not millions of dollars are being left on the table due to pricing inaccuracies.
The First Step: Re-defining Quotes with Pricing in Mind
When sales are up and times are good, it's easy to ignore the occasional pricing mistake on a quote, or solve it through a quick phone call or even a follow-up visit. When times get tough pricing gets micromanaged because margin on every deal needs to deliver in order for a manufacturer to stay profitable. In reality manufacturers experiencing rapid growth yet complacent enough to let pricing be managed some of the time, checked for accuracy maybe once a month, and rationalizing all this with "we'll make it up on volume or that big OEM deal" doesn't cut it anymore.
Their competitors can sense this on deals where prospects share pricing data and pounce when they find you, their competitor, maybe out of sync with the going price by even 5 to 7%. Competitors are watching, your prospects and customers are watching, and if you're publicly held in the United States, even the SEC is watching through Sarbanes-Oxley compliance. All these factors and more are making pricing the competitive weapon of choice in selling and also the most important but least managed part of a quote.
The Second Step: Knowing A Good Deal When You Sell It
For those fortunate manufacturers who have growing businesses, there's a tendency to use rules of thumb, or what many call the assumption base of their companies to make quick decisions on what price to put on quotes as well. This is different than pricing accuracy, which is the point of the first step, as this step deals with analyzing the mix of customized products, services, and margin to determine if the deal the quote is meant to bring in will in fact be profitable or not. When it comes to this point, manufacturers need to quit relying exclusively on the intuition of their sales managers and executives and truly know if the deal they are trying to get through a quote is truly profitable or not. Only by integrating quoting and pricing along with the necessary tools to figure out margin can a manufacturer hope to charge prices that will deliver the highest margin possible.
The Third Step: Unleashing Pricing on New Products
Manufacturers spoken with regarding the payoff of bringing pricing into quoting remark that their biggest payoffs come from being able to quickly launch new products and pricing together, even into their dealer and distributor channels. Once the connection between pricing and quoting systems have been made, one truck manufacturer has been able to both define custom configurations of its products and pricing for each component within five weeks, a remarkable accomplishment when one considers these trucks are highly specialized and have thousands of parts and components. The lag time for one storage products vendor in pricing updates for their quoting and online sales systems was solved through brute force on the part of marketing directors spending all weekend long every three months loading up pricing tables and ensuring they were loaded and working right.
New product introductions are very tough to align with pricing, especially in to-order customized products sold through channels where each channel partner has a different pricing table. Yet if you are looking for a reason to get your quoting systems aligned with pricing, product strategies and turn them into a selling competitive advantage, the next product introduction is reason enough to look for improving how these systems work in your company. Quotes are literally just the beginning, and the integration of pricing and product customization, when managed to a series of goals is what helps to transform how companies are profitably selling today.
The Bottom Line: When sales drop off many companies put their prices into free-fall, sacrificing millions in margins. When sales are up, margins aren't looked at closely and as a result even greater opportunities for profits are lost. What's needed isn't the start of a price war or premium pricing. What's needed is the synchronizing of quoting, pricing and product strategies, making selling the competitive strategy and not just price.
Courtesy – Louis Columbus at Expert Access
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