In this interview, Tim Geyer from MARKT-PILOT and Nikolas Spatz from Horváth discuss the significance of innovative pricing strategies in today’s market. They will explore how implementing advanced pricing software enhances decision-making processes and drives ROI. Additionally, they will address stakeholder involvement in pricing decisions and share insights on successful implementation strategies and future trends in the industry.
For better reading experience, we've split the interview in two parts. For the full interview, we recommend start reading here: Driving Profitability Through Technology: A Deep Dive into Modern Pricing Approaches (1)
Table of Content (Part 2):
What usual challenges do organizations face when introducing new pricing technologies?
Nikolas Spatz: "Data quality and availability are the primary challenges in implementing new software or technology. Poor data quality can render even the best software ineffective. Data consolidation from various sources and APIs is crucial.
Technology integration is another challenge, especially for legacy clients with multiple systems that do not communicate effectively. Often, critical internal knowledge is concentrated in a single person, making it difficult to achieve technological advancements.
From a consulting perspective, the most significant challenge is employee acceptance and change management. Even with a solid strategy and software implementation, if employees are skeptical and not professionally trained or supported by management, the best software won't be effective.
It is essential to involve all employees in the implementation journey from start to finish, including ongoing education on updates and new features. This is particularly important when introducing innovative updates or new product pipelines, as employee engagement is crucial for the software's success."
Tim Geyer: "You are right, Nikolas. The most crucial factor is stakeholder buy-in and urgency. It is essential to have a powerful advocate within the organization who recognizes and champions the need for change, capable of influencing key stakeholders like product management and sales partners. While access to complete and accurate data is important, especially with legacy systems, the challenge lies in finding the right timing and momentum to implement change across the organization.
For mature organizations, integrating an optimal pricing structure with existing systems for efficient workflow is becoming increasingly challenging. Poor integration can lead to reduced adoption and major inefficiencies. Organizations that have addressed stakeholder, data, and methodology issues must now focus on streamlining their processes to succeed on a scale."
Given the challenges of implementing new pricing strategies and technologies, how do employee turnover and generational differences impact this process? Specifically, how does the contrast between long-term employees and those frequently changing positions, particularly in North America, affect the implementation of new pricing software and strategies in companies?
Tim Geyer: "While employee turnover presents a challenge, it's also a significant opportunity. By translating legacy knowledge into a scalable process and environment, companies can reduce reliance on long-term employees and anecdotal evidence. This creates a system that new employees can easily use, regardless of job-hopping trends.
The key is to incentivize legacy subject matter experts to contribute to building a sustainable pricing environment without diminishing their importance. It is crucial to demonstrate how their expertise is vital in creating this scalable solution and to show them the benefits of such a system. This approach can help overcome the challenges posed by employee turnover and generational differences in implementing new pricing strategies and technologies."
How specifically does pricing software influence decision-making processes for pricing strategies?
Tim Geyer: “The key to successful pricing lies not in the software itself, but in developing the right strategy and identifying appropriate data inputs. The process typically begins with small-scale testing, during which users learn to trust the software's recommendations, before gradually scaling up implementation. Throughout this process, humans remain crucial in making final decisions by setting parameters and determining value drivers.
It is important to note that this is not a one-time process. Continuous refinement of parameters is necessary as market conditions change, ensuring that the pricing strategy remains effective and responsive to market dynamics.”
Nikolas Spatz: “From a consulting perspective, the pricing software significantly influences decision-making processes. It transforms intuition-based approaches into data-driven decisions, enables real-time reactions and faster decision-making through automation, and allows for more tailored pricing strategies through personalization and segmentation. As a result, pricing managers now rely on software recommendations rather than solely on personal judgment. The core impact of the software lies in its ability to provide data-driven insights, automate processes for quicker implementation, and facilitate personalized pricing strategies. This shift represents a fundamental change in how pricing decisions are made, combining technological capabilities with human expertise to create more effective and responsive pricing strategies.”
This fundamental change in pricing methodology naturally leads to questions about the return on investment (ROI) for companies adopting these advanced pricing solutions. What methods do you use to calculate the ROI of a new pricing strategy or tool for your clients?
Nikolas Spatz: "When calculating ROI for tool implementation or strategy projects, we need to be clear about what we're measuring. This applies to investments in consulting firms for strategy development, tool implementation including training and maintenance, or ideally, a combination of both.
The key is to analyze existing data points and define the expected return in terms of profit or volume growth. A consulting approach involves using relevant references and historical examples to provide clear, data-driven arguments demonstrating the benefits of investment.
While there is no simple, single sentence answer to defining ROI, using these pillars provides a solid method for calculation. This approach helps explain to customers why the investment is beneficial."
Tim Geyer: "The approach to calculating ROI for pricing projects depends on whether we're focusing on short-term profit increases or long-term holistic impact. For short-term ROI, which most stakeholders prioritize, we compare new prices and quantities against previous ones to calculate a basic return on investment, adjusting for any significant external events.
The key is to start with a simple ROI calculation to build trust initially. Over time, we can develop a more comprehensive understanding of the true ROI by including factors like productivity and efficiency gains.
Crucially, in any pricing project, it is important to celebrate early successes and demonstrate to the leadership team that it is the right path forward. This is best achieved through a straightforward ROI calculation, often referred to as a 'simple Rhode Island calculation'. This approach helps build confidence and support for the pricing strategy within the organization."
Beyond the standard KPIs you have mentioned, are there any unique or unconventional metrics you use to measure success in pricing strategies? For instance, do you incorporate service excellence or product lifecycle indicators when evaluating ROI, or do you stick to basic metrics initially?
Tim Geyer: "The most common KPIs we use include profit margins and revenue growth. Price realization is becoming increasingly important, measuring the actual prices on purchase orders versus list prices to understand the true net effect of price changes.
Many customers also focus on market share and win rates, indicating growth or decline in their market position. Some unique KPIs we have developed include tracking the impact of price adjustments on the number of price complaints received. This helps boost efficiency in our support department by reducing pricing-related calls.
Overall, we use a broad variety of KPIs to measure the effectiveness of our pricing strategies."
Nikolas Spatz: "It always depends on the client's needs and objectives. I fully agree with Tim and our previous points. One additional KPI we have observed in our pricing projects is price enforcement. When we reach the price realization stage, we set specific targets for price increases. The level of enforcement can be effectively used for employee incentivization and performance reviews. For instance, we can evaluate how well a key account manager in Europe has maximized pricing potential with a client. This serves as a valuable KPI for internal incentivization, particularly for price increases."
Tim Geyer: "An additional, often overlooked point is the trust built with customers through improved pricing strategies. Many of our customers include pricing perception in their annual satisfaction surveys. This serves as an indirect leading indicator of price image and customer trust. While difficult to quantify, this aspect consistently emerges in conversations about pricing strategy effectiveness."
How does your software or service deliver rapid ROI for clients, and what is your average timeline for achieving these quick wins compared to industry standards?
Nikolas Spatz: “There is no standard answer as projects vary, but we can categorize ROI expectations. We see a two to eight per cent profit increase potential, depending on the client's pricing management maturity. For short-term wins, we focus on quick pilot cases to demonstrate rapid returns on small investments. These can be completed in two or three weeks, assuming data availability and client cooperation. Long-term projects have more variables, making timeframes difficult to predict. The key is to show quick wins with high returns on modest investments, which can sometimes be achieved even faster than fourteen days with the right database.”
Tim Geyer: "Let me provide two contrasting examples: First, for a smaller company aiming to hit their annual quota, we increased their profit by over $2 million within 60 days of starting our collaboration. Their goal was to maximize prices while remaining market competitive.
Secondly, for clients focused on increasing market share or competitiveness, we typically see ROI in 8-12 months, breaking even on software and implementation costs. Sustainable growth follows thereafter. These examples illustrate the range of outcomes based on different client objectives."
What is your most compelling argument or strategy to secure buy-in from C-suite executives or top management for implementing comprehensive pricing strategies?
Tim Geyer: "There's no one-size-fits-all answer, but if I had to convince top management to invest in innovative pricing strategies and software, I'd say:
An innovative and proactive pricing strategy is essential for building and maintaining a long-term competitive advantage. It's a cash flow positive initiative that doesn't require additional resources and can fund other business areas."
Who are the main stakeholders involved in the process of introducing new pricing tools or software?
Nikolas Spatz: “The main stakeholders typically include management and executives, the IT department, and sales and marketing teams. Management is responsible for setting the strategic direction, approving resources, and leading the initiative. The IT department plays a crucial role in the technical implementation and integration of the software, as well as ensuring data security. Sales and marketing teams are essential to ensure that pricing strategies align with market demands and that the tool's value is recognized in daily operations. Additionally, it's important to involve finance, product management, data analysts, and customer service from the beginning to facilitate a successful implementation.”
How do executives from different areas of the company contribute to the implementation of new pricing tools?
Nikolas Spatz: “Leaders across various departments are vital for successfully introducing new pricing tools. They are accountable for achieving strategic goals, allocating resources, and ensuring that pricing strategies are executed effectively to foster sustainable success. Their active involvement and collaboration are crucial for integrating technology smoothly and supporting data-driven decisions. It all begins with leading by example; managers need to guide the entire end-to-end process.”
What strategies do you use to convince senior leadership, particularly C-level executives, to adopt new pricing approaches or technologies?
Nikolas Spatz: “Understanding a client’s needs and objectives is essential for developing a collaborative solution that delivers clear value. When discussing investments in pricing strategies, presenting a simplified return on investment calculation can effectively illustrate the benefits. Based on my experience, achieving quick results is impactful. By starting with small pilot projects that demonstrate quick wins, senior leadership can gain a better understanding of the investment's value and leverage initial results to garner additional internal support.”
Further to the conversation with Tim Geyer, Nikolas Spatz from Horváth discussed the impact of implementing pricing software on a company's long-term strategy. He explained that such software significantly enhances long-term pricing efficiency, enabling quicker reactions to market changes, even in real-time. He emphasized that by automating analyses and updates, employees can focus more on strategic pricing, which represents a major value-adding change for companies.
Regarding maximizing the benefits of newly implemented pricing software, Spatz stressed the importance of optimizing organizational adoption. He advised companies to focus on training, utilizing, and maintaining relevant software functionalities that meet their specific needs. He also highlighted the crucial role of effective change management, as employee acceptance and satisfaction are key to maximizing software benefits.
Finally, Spatz advised businesses to stay curious and up to date in the pricing world. He emphasized the importance of constant analysis and data-driven decision-making to determine what's most important for each business. Spatz concluded by stating that there's no one-size-fits-all solution for pricing strategies and tools, and each business should develop its own path to sustainable value, utilizing future pricing developments to remain competitive, relevant, and customer-centric.