Definition CPQ is an acronym for Configure, Price, Quote. CPQ is used to describe the process of...
Pricing is difficult and also very sensitive. Changes in pricing is one of the most effective way to level overall profit.
This list of pricing mistakes can be used to build a good business case for a CPQ (Configure-Price-Quote) investment.
Weak controls on discounting
It’s not uncommon that sales representatives are given a lot of freedom when it comes to negotiating the price. This means what the profit per deal is very dependent on the person executing the sales.
Discounts are often given without a controlled won/loss analysis and are more based on gut feeling. This means that prices will vary very randomly.
Without analysis and a proper approval process these issues will not go away. This is something a CPQ solution will address.
Inadequate systems for tracking competitor selling prices and market share
It’s difficult to understand the completion and most companies don’t put any effort into analyzing the lost deals.With a CPQ solution it’s possible to benchmark the won and lost deals in a very structured way. It’s possible to find what key features of the product that correlates with won deals and also what features that are typical for lost deals.
Cost-plus pricing
Cost plus pricing is still very common in the manufacturing industry. The problem with this approach is that it assumes that the customer value is dependent on the production cost. Everybody knows that this is not the case.A CPQ solution can price on factors that are actually valued by the customer and at the same time ensure that margin.
Price increases poorly executed
There is a problem when price increases can’t be motivated. If we’re not providing any new customer value, why should I pay a higher price?It’s essential to plan ahead and do price increases as your product improves. If your new engine will cut fuel consumption there is no problem to pay a higher price.
That’s why price increase should be coordinated with product development. This means that timing is essential. Do the math and plan ahead. This is a process that a CPQ solution should support.
Worldwide price inconsistencies
In a global market it’s no longer possible to have inconsistent pricing.
By introducing a central storage for local price it’s possible to understand and correct price inconsistencies. A CPQ solution normally connects the global and the local prices. This means that a CPQ solution introduces the possibility to have governance for local pricing.
By introducing a central storage for local price it’s possible to understand and correct price inconsistencies. A CPQ solution normally connects the global and the local prices. This means that a CPQ solution introduces the possibility to have governance for local pricing.
