Pricing drives profits.

According to McKinsey, effective pricing can help companies increase their return on sales by 2-7%.

However, getting the price right is hard. Let’s look at some of the common pricing challenges a company faces.

• Winning RFQs: Sometimes, companies lose because they did not submit a good response to requests for quotes (RFQ) because of extended deliberations about the price. This could be due to various reasons, such as a lack of strategic pricing planning, unsettled response to market fluctuations, lack of internal communication, and limited understanding of the customer’s decision-making criteria.

• Quoting for new product development: Companies developing new products often struggle to balance profitability and meet the pricing expectations of the target market. For example, high prices could drive customers away, while lower prices could make them undermine a product’s real value. They also must consider hiring, marketing, and product development costs while arriving at the right pricing strategy. All these factors make it hard for companies to price for new products.
• Wrong pricing strategy: A wrong pricing strategy could lead to inconsistent pricing, inaccurate financial projections, and eventually lost sales opportunities. Additionally, factors like market dynamics, regulatory limitations, and complexities in building pricing models can make determining the right price challenging.

• Cost volatility: Despite good pricing strategies and using tools to determine costing, companies could still face issues due to a poor understanding of cost volatility. For example, excess competition, geo-political issues, and volatility in raw material and labor costs can impact the company’s long-term pricing strategies and profit margins. Without mitigating these issues, companies could face problems in optimizing pricing decisions.
• Error-prone and delayed quoting process: Companies often use error-prone and outdated data, perform manual calculations, and perform incorrect analyses. A simple oversight could lead to lost sales opportunities, employee dissatisfaction, and reputation damage. They also struggle to deliver accurate quotes due to over-dependency on manual pricing strategies. This makes the entire process time-consuming and expensive. It cannot be addressed without automation.

However, companies can address these challenges by using tools like Pricing-Pro.

Five Reasons Why Companies Must Use Pricing-Pro

Pricing-Pro is a tool that helps companies make informed pricing decisions and overcome the pricing challenges they face while submitting RFQs or quotes for new product development.

Let’s look at how it can help companies overcome challenges and make the right pricing strategies:

1. Tracks price sensitivity 

Companies often face issues setting prices during volatile market conditions. Everything is so tightly integrated that a single factor, like rising material costs or a delay in production cycle time, could impact pricing and profitability. Pricing-Pro offers features like simulation/sensitivity analysis that inform companies about the potential impact on pricing due to market fluctuations or changes in material prices and exchange rates. This helps companies anticipate changes, set prices accordingly, and minimize the chances of losses.

2. Integration with SAP and other ERPs

To submit accurate RFQ, companies must have access to real-time data on bills of materials, raw materials, and actual purchasing prices. These details are often available in disparate systems. Typically, companies gather, import, and manage them from different sources in an Excel sheet. This manual process delays the timely submission of RFQs. Pricing-Pro supports the import of master and transaction data and allows integration with SAP and other ERPs. As real-time data becomes accessible, companies receive updated information on material and overhead costs, and the turnaround time (TAT) for RFQ processes is reduced.

3. Supports multi-currency options

Pricing-Pro allows companies to expand their business in other geographies and cater to different customers by providing multi-currency options. It enables companies to discuss prices in preferred currencies, create quotes, and protect profit margins. By helping companies navigate the complexities of global pricing, Pricing-Pro helps them seize new business opportunities and gain a competitive edge.

4. Covers different parameters

To arrive at the right pricing strategy, companies have to consider various parameters, such as:

• Hourly rates: It covers the hourly rates of skilled professionals.
• Cycle time: Longer cycle time could lead to more overhead expenditure on labor, machines, and production.
• BOM norms and rate: Changes in BOM norms and rate could impact the cost of raw materials and components and increase the final price.
• Base metal rates: Fluctuations in prices of base metals like steel, copper, and aluminum could impact the production and final costs.
• Scrap rate: Scrap rate helps companies determine if they need to reduce wastage and save costs.
• Marketing and admin costs: Indirect costs on advertising, sales commissions, and administrative overhead could influence the final pricing.
• Discounts and royalties: Companies must factor in discounts and royalty payments when determining pricing strategies to keep profit margins high.
• Currency exchange rates: Fluctuations in currency exchange rates should be considered if international trade is involved to maintain price stability.

Pricing-Pro covers these parameters, making it easier for companies to develop the right pricing strategy.

5. Allows informed decision-making

Sometimes, companies are unable to make informed pricing decisions due to factors like lack of historical and real-time data, limited visibility of quotes, and miscommunication between teams due to silos. These factors prevent companies from spotting pricing trends, analyzing historical quotes, identifying bottlenecks in pricing decisions, and submitting RFQs on time. They cannot change their pricing strategies or improve profitability. Pricing-Pro provides dashboards that allow companies to monitor real-time pricing data and track the status of previous quotes. This helps companies keep track of pricing history and analyze price changes.

Conclusion

Companies find it challenging to determine the right pricing strategies in today’s volatile market. That’s why it has become crucial to invest in intelligent tools like Pricing-Pro. They integrate with existing ERPs and offer features like price sensitivity tracking, dashboards, and multi-currency support. These tools help companies track market volatility, analyze historical and current pricing trends, and navigate pricing complexities to balance customer satisfaction and profitability.

For more information on Pricing-Pro, contact us.