The P of CPQ
CPQ (Configure, Price and Quote)
is emerging as one of fastest growing areas in sales. It helps sales reps
effectively sale products and services, reduces the overall cycle time,
minimizes quote errors and brings uniformity across channels. But one of the
greatest contributions of CPQ is the capability to add complex, analytical and
smart pricing to improve overall margins and revenues.
This article focuses on the comprehensive
pricing capabilities of every CPQ solution and is based on my personal analysis
and experience with multiple CPQ solutions and research articles.
Basic Pricing Methods
- Matrix based pricing CPQ solution should provide flexibility to define dimensions and price based on those dimensions. As example, a sales rep may need to define price or discount/markup based on combination of customer priority, country and quantity. A CPQ solution should facilitate defining multi-dimension price matrix.
- Related and Dependent Pricing Many times the price of product/service depends on other products or services. This may be a simple relationship, for e.g. % based, or complex mathematical calculation. The related products may be in the current quote or already installed/purchased by customer a.k.a Asset based pricing. As example the price for extended warranty in the quote could depend on the price of already purchased product.
- Attribute Based Pricing In practical situations, prices of products/services depend on the attributes selected during configuration. This is one of the most common pricing capabilities required in CPQ. As example, the price of an ECG cart varies with selection of monitors and trollies.
- Pricing Rules CPQ solution should also allow writing logical and conditional rules to be applied at aggregate level (product family, cart etc). This can be used for volume discounting, promotions and offers.
- Contextual Pricing Contextual pricing refer to the concept of defining the price of an item depending on how it is sold. For e.g. An Anti-virus package sold as part of complete desktop configuration will have a different price as compared to when it is sold alone.
- Hook for external or custom pricing Many organizations have their own pricing engines or external systems to drive pricing logic. Every CPQ should support callback or hooking mechanism to either integrate with external system or write custom logic for pricing or discount.
- Support for Tiered Pricing and Price Ramps Tiered based pricing refers to the pricing method where items are prices based on tiers rather than discrete. As example to better understand this, consider the price of Internet Service usage which varies with slots like 0-1 GB, 1-5 GB etc. On other hand, Price Ramps is the slicing of selling terms and price. For e.g. the maintenance fee of the product may markup with some % every year. Tiered pricing and price ramps are among most commonly required pricing schemes in a CPQ solution.
- Contractual Price None of the customer or partner would ever like to re-negotiate the price of same or similar products/services. Contractual price helps maintain the negotiated and contracted price with customers, dealers and partners.
- Promotions & Offers Promotions & Offers are the commonly used mechanism to boost sales. CPQ solution should facilitate to define and manage promotions & Offers.
Advanced Pricing
Methods
- Prescriptive Analytics for Pricing As a concept, Prescriptive analytics applies a multitude of business rule algorithms, multiple mathematical and computational modelling systems to automatically synthesise hybrid data sets and answer not only what will happen in future but what also needs to be done about it. In CPQ world, Prescriptive analytics can be used to drive more competitive pricing, which is based on historical data and prescriptive analysis.
- Market-Driven Personalized Target Pricing In today’s world, Sales reps want to have more personalized and data driven target price to be shown while quoting instead of orthodox single static list price for everyone.
- Transaction Data based Dynamic Pricing Transaction data (by order, product and customer) can be the best source to derive dynamic price for the quoted products.
