Does your sales force ever feel outgunned when it comes to battling for new and expanded business with your prospects and customers?
That’s because the procurement function among your buyers has become far better armed with information to negotiate sales contracts in their favour. And it means they consistently get better pricing from you, while your margins and profitability steadily decline as you strive to remain competitive.
Consider this: In 2010, research from both McKinsey and Gartner indicated that companies spent more than £1.89Bn billion to purchase e-procurement software to gain an advantage in negotiations with suppliers. That compares with spending of only about £113M for information technology on the producer’s side.* These figures dramatically underscore the power that purchasers have gained over producers in the marketplace during the past few years.
The fact remains: you can’t expect your sales force to prevail in the battle for new business with horses and bayonets when your prospects and customers across the table are wielding computerised guided missiles. Unfortunately, far too many businesses find themselves in this situation, with their sales staff forced to rely on simple spreadsheets, static price lists and individual intuition when negotiating sales contracts.
It’s perhaps not surprising that a 2011 global pricing study by German management consulting firm Simon-Kucher and Partners, a specialist in pricing strategy, concluded that weak pricing and sales support reduces manufacturing profits by as much as 30%. The study also revealed that more than 50 per cent of manufacturing companies say they are not able to charge the prices they deserve in comparison to the value that their products and services deliver. *
There are businesses, however, that are levelling the battlefield by making use of the Big Data they already collect. This better use of data gives their sales forces the support needed to negotiate more profitable deals. In fact, a recent report from analyst firm Gartner states that companies who invest more fully in Big Data technologies than their competitors have the potential to outperform the competition by 20% in every available financial metric. This sentiment is echoed in a recent article in Harvard Business Review that says companies in the top third of their industry in the use of data-driven decision-making were on average 5% more productive and 6% more profitable than their competitors.
While much hyperbole surrounds the term Big Data these days, it essentially means using information such as customer transaction and market data to gain actionable insights that can support your sales and marketing efforts. Most organisations have already made substantial investments in customer relationship management (CRM) and enterprise resource planning (ERP) systems. The key to unlocking actionable insights from the big data collected in these systems comes from the dynamic, automated analysis of that data and applying the results to your pricing and sales strategies.
For example, an advanced analysis of customer transactions over time can provide pricing and sales professionals with a highly accurate picture of any customer’s value. These transactions can identify low-performing customers by reviewing customers in different markets, their prices, and their relative ranking for revenue and profitability.
From the sales and pricing management perspective, sophisticated transaction analysis of Big Data often reveals that the most potential for margin improvement exists among customers in the middle range of the profitability distribution. While most companies have taken tactical measures to find the extremely low or negative-profit customers, few have identified average-profit customers that could do a little better when comparing them with other like customers. This is precisely where big data analysis can improve the negotiating confidence of the sales force in pushing for increases in prices and margins when it makes sense.
Big Data analysis with new technologies has enormous potential to assist sales people in the field throughout the sales life cycle, from quoting prices to negotiating contract discounts. This is achieved by providing the sales force with real time information and insights to improve negotiation while also enforcing accountability. Here are some examples of the kind of support you can deliver:
- Provide your sales people with a negotiation tool to help them bolster their negotiating confidence and see the profitability of each customer on company margin.
- Support sales with scientific, statistically valid, optimal price guidance for each customer segment or even individual customers. Suggest minimum prices that should be offered to maintain margin levels, and provide additional value drivers to help improve profitability and position a customer compared to its peers within a market segment.
- Eliminate reliance on gut feel versus using data that provides guidance and demonstrates a customer’s willingness to pay
- Provide sales staff, sales managers and executives with up-to-date key performance indicators (KPIs) that show current achievement of targets and projected achievement if sales meet objectives.
- Integrate external market data to dynamically compare your prices with other suppliers in your market.
Today’s successful sales organisations are rapidly learning to tap their wealth of customer and market performance data using advanced technologies. By harnessing Big Data with scientific analysis and applying it to support sales you can not only improve revenue and margins but also deliver better-perceived value to your customers.
As McKinsey points out, a 1% increase in pricing accuracy can result in an 8% improvement in profit. Thanks to big data analysis, companies of all sizes have the opportunity to gain actionable insights to support their pricing and sales strategies. The rewards in terms of increased revenue and improved margins are substantial to those who seize that opportunity.
*Craig Zawada, How to go from good to great with pricing software, 2011
About the author: Rob Glenn is general manager, EMEA at PROS, a leading provider of business-to-business software for improving sales and pricing management. He has more than 22 years’ experience in the software industry and is responsible for managing PROS sales growth and operations across Europe. Glenn has a long history of helping businesses address the challenges that they face around issues including big data, sales optimisation and revenue management.