Pricing Practices Start to Make Change

At B2B companies around the world, the use of pricing practices and pricing software -- along with the number of employees focused solely on pricing issues -- is on the rise, according to a new survey by the Professional Pricing Society (PPS) conducted in association with Zilliant, a pricing management software vendor. PPS President Eric Mitchell says he sees the growth as a positive trend for businesses, and that knowledge about the importance of pricing has reached a "critical mass." One of the survey's key findings was that pricing groups -- professionals within an enterprise who deal with pricing issues full-time -- have grown in size and influence over the past several years. More than 90 percent of the businesses surveyed have a standalone pricing group, a sharp increase from only 50 percent in a similar 2002 survey. In the past, pricing was often the domain of a single staffer -- a marketing vice president, perhaps -- who dealt with the topic on only an ad hoc basis. That is no longer the case: 30 percent of pricing groups have 10 or more members, while 5 percent have 100 or more members. "There's been a huge increase in the profession, and more human capital in pricing," Mitchell says. The membership of the PPS itself provides evidence of the pricing profession's growth: The society had fewer than a thousand members five years ago, and more than 3,300 today. In addition to having more people working on pricing, businesses are increasingly turning to specifically designed software to help them manage these issues. The vast majority of businesses surveyed still simply use spreadsheets to keep track of pricing information, but the 13 percent of respondents who use pricing software today is a three-fold increase over the 4 percent who reported using it in the 2002 survey. Moreover, fully half of respondents said they will consider pricing-software deployments in the future. "There's a rebellion happening against uncoordinated, unsophisticated spreadsheets," Mitchell says. "It's encouraging to see the number of people turning to more sophisticated software. I think it's the start of a critical mass." The survey also reveals prevalent use of advanced pricing practices such as price optimization (used by 44 percent of respondents) and rules-based formulas (39 percent), in addition to the traditional method of taking only costs and competition into account. Other findings in the survey include:

• 72 percent of respondents cited "improved profits" as the principal driver of their pricing strategy;
• 72 percent of respondents cited "better decision making" as the primary motivation for considering pricing software, compared to only 34 percent who cited "greater efficiency"; and
• only 6 percent described their current pricing practices and tools as "very effective." Consequently, 73 percent have plans under way to improve them.

The survey is based on information from 500 respondents in the industrial, manufacturing, high-tech, and distribution industries collected at the end of 2007. About 70 percent of the respondents were based in North America, and the remaining 30 percent were spread around the world. [UPDATE: An earlier version of this story included an incomplete reference to the organizations that produced the study in question. destinationCRM.com regrets any confusion this may have caused.]

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