CRM isn't just about sales force automation, customer loyalty, or 360-degree customer views. It's also about the processes that support those ideas.
Posted Jun 9, 2003
How a company distributes pricing information internally has traditionally been considered a back-office function. After all, these are the applications that generally calculate the necessary prices, shipping charges, and taxes to create the invoices that are submitted to the purchaser for payment. In addition, with the exception of marketing the functional groups that are responsible for a company's pricing strategy are more closely aligned to the back office. This leaves the front office with the responsibility of having to extract pricing information and distribute it itself, which often leads to the development of a vast array of price list reports and spreadsheets.
These islands of pricing information create a host of problems: increased administrative costs, inconsistent and inaccurate pricing, inability to rapidly respond to changing market conditions, and decreased pricing flexibility.
The best solution to these problems is to move pricing out of the back office and into the front office, which is becoming easier to achieve as CRM application vendors add more sophisticated pricing functionality to their product suites. Customer-centric organizations have integrated their pricing engine into their CRM application, and have experienced many benefits.
There are six key benefits to moving your pricing functions to the front office:
1) Reduces sales cycles and improves cash flow
Moving pricing to the front office reduces sales cycles and improves cash flow by giving sales agents the information they need to quickly and accurately quote an order from a single, consistent source.
When customers are ready to buy, the sales agent needs to have the tools to quickly provide an accurate quote for valid products to be delivered by a reliable promise date. Sales agents spend too much time on administrative tasks like reviewing catalogs, consulting with sales support, searching spreadsheets, and duplicating order entry. This time could be better spent on getting the product to the customer faster, or selling the product to more customers.
2) Provides sales agents with the ability to configure and quote an order in real-time via a single CRM application, which enables a whole new set of capabilities.
Customer-focused product configuration rules can be enforced and dynamic pricing can be applied, shipping charges and taxes can be calculated, and a specific promise date can be confirmed and guaranteed; all this without having to travel back to the office or requiring dual entry ("swivel-chair" integration) to other systems.
Sales agents that spend time handling complex orders using multiple systems have less time to spend on new orders and generating new business. A single system gives them more time for these activities, as well as other customer service-related activities like order management and issue resolution. This reduces the amount of time between when an order is placed and when it is delivered, thus improving cash flow.
3) Improves margins
Front-office pricing improves margins by enabling dynamic pricing based on various CRM components, including customer profiles, product attributes, and market segments.
Simply knowing who your best and most profitable customers are does not guarantee a successful CRM strategy. Companies should implement programs and policies that target highly desirable customers and provide incentives for them to increase their sales volumes. For example, account profile information like membership in a buying club, being a competitor's top customer, or belonging to a target industry may trigger discounts or promotional benefits that encourage a prospect to become a long-lasting customer.
On the other hand, belonging to a low-volume, high-cost customer segment group may trigger price premiums that encourage the customer to either purchase more high-margin products or migrate to a competitor.
Establishing pricing rules dependent upon product attributes may also help raise margins. For example, if sales of a product in the color red are outpacing sales of the same product in blue, price premiums may be added for the red product while price discounts could be added for the blue product. This would ensure that the optimal price is charged for each to balance margin targets with inventory goals.
Knowing your customer's previous purchasing history or comparing a purchaser's profile to similar customers allows you to use upsell and cross-sell techniques that steer them toward products with higher margins and those that encourage a more long-term buying pattern.
4) Lowers administration costs
Using one system to deliver consistent pricing across all channels (Internet, field sales, telesales/call center, and channel sales partners) lowers administration costs.
Using multiple pricing and order management systems for each selling channel increases implementation, administrative, maintenance, and upgrade costs. By distributing pricing logic through one repository, these costs can be significantly reduced while ensuring that your prices are applied consistently throughout your organization.
However, this approach doesn't just reduce costs and ensure consistency. By deploying a single pricing engine, changes only need to be made once. This allows an organization to adapt quickly to changing market conditions by making them more flexible and nimble.
5) Reduces accounts receivables
Pricing in the front office reduces accounts receivables problems upfront by enforcing pricing rules during order entry, which reduces invoicing errors and disputes.
Customers are demanding more product options to allow them to customize purchases to their exact requirements. This has led to more complex product offerings that require sophisticated product configuration and pricing models. Without the appropriate tools sales agents may promise products with options that cannot be delivered, provide inaccurate quotes, or configure a product that doesn't meet the customer's expectations. This can result in cancelled orders or significant order reconfiguration.
Delays due to missed deadlines, reorders caused by incomplete sales forms, or lost sales because of cancellations are costly and can damage a once-solid customer relationship. Resolving product configuration and pricing abnormalities at the time the quote is provided improves order entry compliance and reduces the likelihood of invalid orders reaching the order fulfillment system.
6) Reduces integration costs
Moving pricing to the front office reduces integration costs between a firm's CRM and back-office systems. By joining marketing, customer, and product information together with product configuration and pricing rules, a company can reduce the number of its cross-application integration points. Other pricing components that are tied into the back office can be integrated with the CRM pricing engine. These include those systems that calculate delivery charges and taxes, and provide credit card authorization.
Moving pricing processes from the back office into a CRM system also decreases the frequency of round-trips data must take to fulfill an order, since less back-and-forth communication is required among the various systems before the order is approved.
CRM isn't just about sales force automation, customer loyalty, or 360-degree customer views. It's also about the processes that support those ideas. Pricing is a frequently overlooked and underappreciated component of CRM strategies. However, pricing provides the framework to build and sustain healthy and satisfying customer relationships by enabling smooth, consistent, and effective business transactions that are mutually beneficial. Joining CRM and pricing can positively affect your bottom line by improving cash flow, increasing margins, lowering administrative and integration costs, and reducing aged receivables.
About the Author
David Bradford is a CRM--practice manager for Plutus Enterprises. He has been involved with the management and development of customer care and CRM applications for more than eight years. This experience includes project management, software development, and process automation experience in the systems integration environment, focusing on clients in the telecommunications, energy, and financial services industries. In addition to his national CRM practice management responsibilities, Bradford specializes in engagement management, software vendor selection, and project analysis and audit.