deal desk overseeing deal transaction pricing, and, as a result, they have Figure 2: Transaction pricing management practices, from laggards to leaders
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deal desk overseeing deal transaction pricing, and, as a result, they have Figure 2: Transaction pricing management practices, from laggards to leaders
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www.pwc.com/technology
The future of software
pricing excellence: Transaction pricing managementTechnology InstituteSegment-specific strategyPricing
goalsPortfolio
analysisOverall
strategyPolicy
enforcementOpportunities
and requestsQuoting and deal
managementPrioritisation
and allocationPricing performance
measurement and managementSegment-specific pricing and policiesCompliance
Overall pricing
and policiesPricing data
and rulesSales force and
partner enablementProcess
Organisation
Technology
Data & analytics
1- P r i c i n g s t r a t e g y 4 P e r f o r m a n c e m a n a g em e n t 2 P r i c e f o r m u l a t i o n 3 T r a n s a c t i o n ma n a g e m e n tFigure 1:
PwC's pricing management framework
Source: PwC
Executive summary
The future of software pricing excellence / 2
LaggardMainstreamLeader
Process
Ad hoc
processes and decision-making, no clear policies in placeWell defined but poorly integrated processes with limited cross-functional coordinationFully-integrated, cross- functional processes across product creation, price setting, guided selling and discounting, including a closed- feedback loop to monitor performance and customer interactions and make adjustments as neededOrganisation
No clear owner of
pricing - it is 'shared' across organisationsPricing review committees overseeing pricing at the global level including regional pricing committees overseeing pricing and discounting at the regional levelCentralised pricing organisation defining pricing strategy, enforcing pricing and discounting policy with a centralised deal desk overseeing deal approvals as neededTechnology
Excel is the system and
tool of choiceSystems in place but they are primarily disparate, point solutionsIntegrated systems leveraging product, pricing, customer, contract and entitlement master data to determine transaction priceData and
analyticsAd hoc capture of deal and discounting data, typically at a high- level (e.g., by overall transaction) and with limited analytic capabilitiesCapture data at all levers of the price waterfall with the capability to then run analyticsCapture data at all levers of the price waterfall and use it to simulate and model future price curves and provide insight to inform pricing strategy pricing strategy. [Figure 2]Figure 2:
Transaction pricing management practices, from laggards to leadersSource: PwC
The future of software pricing excellence / 3
1.Designing a price waterfall. A price
2. 3.ğenforcement.
throughout the company.Designing a price waterfall
process so sales people can negotiateBenefits of a price waterfall framework
List price
Regional
list priceEnd user
buy priceInvoice
priceLogistics
Sales and marketing
costsOff-invoice price adjustmentsPartner
priceMostly controlled by pricing levers
Captured by analytics
Figure 3:
Price waterfall framework example
Source: PwC
The future of software pricing excellence / 4
1. ğ
Type of leverExamples
1. Regional
Foreign exchange/currency adjustments
Country adjustment
2. Volume/Promotion
Volume
Term adjustment
Promotions
3. Up-sell/Cross-sell
Extended warranty
Trade-in
Bundle discount
4. Channel
Authorised dealer
Specialised reseller
One-time reseller
5. Payment
Extended credit terms
Non-standard billing terms
6. Delivery
Advance delivery
Expedited delivery premium
2. 4.The future of software pricing excellence / 5
FX adjustments
Country
adjustmentsRegion
adjustmentsLanguage
adjustmentsProgramme
discountsVolume
discountsContractual
pricing Standard channel discountsSpecial partner
discountsPartner
contractual discountsPromotional
discountsAdditional
negotiated discounts LogisticsOff-invoice
promotionsCash discount
termsCredits/Rebates
Mktg dev
funds/AdsSales programmes
Returns
Commissions
Pricing errors COGS Technical support Sales costs Services costs Special costs- to-serve Using the price waterfall framework to identify and close profitability leaks Tools like a price waterfall also help identify and close profitability leaks List priceMSRPInvoicePocket
priceAre our go-to-
market strategies reflected in our MSRPs?How consistent is
our pricing within segments or customer groups?Do our actual sales
match the expected price/volume curves? 1Were our sales done
within quoting authority?How much additional
discounting do we give?Are our promotions
working?How are our
channels/partners performing? 2Are we capturing
all of our logistics costs?How is our
commission structure impacting margins?Are specific
customers or products driving credits?Are rebates an
effective incentive for increasing volume? 3Do our price and
margin targets accurately reflect all our costs?What is our true
cost to serve customers (both big and small)?How can we
optimise selling, service and support costs? 4Figure 4:
Using the price waterfall framework to identify and close profitability leaksEnsure your pricing metric aligns with
retention rates•Source: PwC
The future of software pricing excellence / 6
and enforcement analytics. [Figure 5]The role of a centralised pricing organisation
Pricing performance and policy monitoring
High level
product goalsInitialproductcostsUpdated
product costsGaps to
product strategy steering committee policiesHigh level
product pricing strategyPriceagreementsFinalise price
points (Generic and vertical)Review business
and segment strategyDevelop overall
pricing strategy; set base pricePerform internal
and external analysisSocialise
pricingPublishpricebookand policiesPricing
adjustmentPrice analysis for deal management
Quote evaluationOffer/counteroffer
Request
for quoteApprovedquotePrice/volume
compliance enforcement guidelinesPrice masterOpportunity
Price analysis for
pricing strategy and price settingFigure 5:
The role of a centralised pricing organisation
Source: PwC
The future of software pricing excellence / 7
Decentralise pricing authority to empower
Transaction pricing management
in action processes annual operating income.Conclusion
series go to© 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of
which is a separate legal entity. Please see http://www.pwc.com/structure for further details.This content is for general information purposes only, and should not be used as a substitute for consultation with
professional advisors.