What is pricing transformation?
Pricing transformation is when a business changes how it sets prices in a planned way. It means using and integrating digital technologies to make pricing plans work better. The main goal is to ensure that prices correctly reflect how much people think a product or service is worth, that prices adapt to changes in the market, and that profits are maximized.
This “digital pricing transformation” method uses computers to help set and change prices more accurately and quickly. Companies can make sure they charge the right price for each transaction by using software that looks at market trends, customer demand, and the landscape of their competitors.
The use of technology causes different prices. Businesses can use it to collect and study vast amounts of data to make better decisions, automate pricing processes to save time, and change their pricing strategies based on the type of customer and the market state.
Pricing transformation means switching from a standard, often fixed, way of setting prices to one that is more flexible, based on data, and driven by technology. This change makes it easier for businesses to make and keep money in a competitive market.
Synonyms
- Digital pricing transformation
- Digital pricing
- Digital pricing strategy
- Pricing Automation
Advantages of Changing Prices
How to Solve Pricing Problems
A hybrid pricing approach is used by most businesses today. Depending on your business type, this could have fixed-rate, value-based, subscription-based, usage-based, or gratis parts.
For example, almost half of all SaaS companies offer pricing based on how much you use their software and their regular subscription plans. And this doesn’t include other ways to set prices, like bulk discounts or special deals.
This creates a complicated web of pricing systems that can be hard to understand and keep track of. This means you can’t determine the best price for each part, like how much to charge for a flat-rate subscription and how much to charge each person over a specific limit to use a SaaS platform.
These days, businesses don’t have a choice but to set prices. They need to use pricing technology to ensure that every part of their pricing plan accurately reflects what customers want and helps them make the most money.
Make the customer experience better.
Customers are more likely to trust a business when they think they are getting a fair deal. Companies can see in real-time how much demand there is for their goods or services when they change their prices. This is very important if your pricing plan is based on value.
By using digital tools to analyze data about what customers buy, how they behave, and what they like, businesses can better divide their customers into groups and come up with pricing strategies that fit those groups, reflect the value of their goods and services, and make the whole experience better.
Also, your sales process is a big part of how your customers feel about your business. When it’s easy for your sales team to tell prospects about prices, it’s much easier for them to share that information with others who make decisions and finally buy. So, changing your prices removes much of the difficulty in your sales process.
Use both hybrid and dynamic pricing.
As we already said, price transformation technology lets businesses use hybrid pricing.
- SaaS businesses use it for the best usage-based and fixed-rate subscription plans.
- Manufacturers and distributors use it to find the best mix between discounts for bulk purchases and subscription prices.
- Retailers use it to combine regular and sale prices successfully
Service providers set prices based on the amount of service, time, and project costs.
To stay competitive, some types of businesses need to use dynamic prices. For example, airlines and hotels have to change their prices all the time based on things like demand, the time of year, availability, and the date and time of the ticket.
This is made possible by technology. Without modern pricing engines driven by AI, you can’t change prices based on real-time market demand, affecting prices’ sensitivity and how sensitive prices are.
Give explicit pricing action.
About 91% of people really value it when you are clear about your prices. Prospects will go with a more trustworthy vendor if your pricing model is too hard to understand, and your present customers will leave for one that is.
The way every business sets prices these days is incredibly complicated. Ultimately, you need software to help set prices so that your written agreements and bills align with actual transactions and your customers know what they’re paying for.
Getting the most profit
According to a study by McKinsey, when a business uses software to change its prices and is successful, it usually sees an increase in its profit margins of 2% to 7% in just 3 to 6 months.
Selling your product to customers will be easier if you are more flexible and competitive. This means that your sales efficiency will go up, and your cost-per-acquisition will go down. Plus, pricing tools help you set prices that are very close to what it costs you to run your business and send your products so you make more money immediately.
How to Implement Pricing Transformation in 8 Steps
Look at how you’re setting your prices now.
- The first thing you should do is do a complete pricing study.
- Take a look at how you set your prices now.
- Look at how your companies set their prices.
- Look at how well your price structures work in terms of making money and keeping customers happy.
- Look into how customers see things, what they like, and how price-sensitive they are.
To do these things, you’ll need to look at data from your sales team, your CRM, customer surveys, and market studies. For this reason, it helps to have a cross-functional team with people from marketing, sales, finance, and operations.
Take a look at the tools and processes you already have.
There are different rules for each business regarding setting prices and taking payments. That is why you must audit your current systems and processes to find the holes and mistakes (i.e., the places where you can add new tools).
- What are the ways you currently bill, invoice, and collect?
- How do you keep track of past sales and payments from customers?
- Do you have a central database keeping all your price information?
You should also check whether your present tools can handle price changes. You should use criteria and standards from your business to judge your CPQ and other pricing systems.
- Types of documents and their power to make them
- Types of deals and how they are set up
- Setting up visually
- Guided sales based on rules and analytics
- Workflows for approval
- The cloud lets you e-sign documents, send quotes, and work together.
- Integrations of CRM, ERP, and data management
Remember that changing prices isn’t just about the tools you use. Ultimately, your team’s skill at using the tools they have access to will determine how well they can reach their goal. A big part of this evaluation should focus on how well your processes are simplified from a human point of view and how well they fit with your company’s culture.
Set your goals for price.
Your pricing goals should be clear, measured, attainable, and relevant, and they should have a due date (SMART). Some examples of goals for prices are to:
- In the next three months, bring in 10% more money.
- Raise the number of happy customers by 20%.”
- “Cut the total time it takes to make a quote from two days to one hour.”
You’ll base these on what you learned when you look at your current tech stack, systems, and processes. You know which KPIs to look at to measure and track your progress toward your pricing change if you have a clear set of goals.
Make a plan for your pricing approach.
It’s essential to make a roadmap showing the steps and due dates for putting your pricing strategy into action once you know your goals. This needs to have:
- Setting priorities for projects based on their importance and timeliness
- Making a list of important people and what they need to do to help with the change
- A detailed schedule with important dates for each project
- Setting aside money in the budget for tools, training, and other resources
- Your business, marketing, sales, and operations teams must work together.
- Finance will show you how different pricing methods and tools affect your money. They will also help with allocating funds.
- Your marketing team is essential for creating messages with your new pricing system. In this step, they’ll help you determine what your customers want and how the market changes.
- The people in sales are the ones who use your pricing tools to set prices and make sales. It would be best if you asked them what they think it is that they need to be able to do their jobs well.
- Operations help with the price process, so you’ll need them to tell you how tools can best work with your current systems and processes.
Pick the right tools for setting prices.
Based on your audit and analysis, you will probably need to buy new price tools or make changes to the ones you already have to reach your goals for transformation. When picking these tools, think about things like
- Being simple to use and set up
- Options for customization and scalability
- The ability to connect to your current tools
- Options for training and helping users
- Cost and return on investment (ROI) research
Simple CPQ software for small businesses is one type of pricing tool. More advanced manufacturing pricing solutions with 3D graphics and AI-driven pricing optimization are another. SaaS pricing tools that handle complex subscription models are yet another type. Pick the tools to help you reach your goals and fit your general pricing plan.
Teach your group.
Your new pricing tools will only work for the people who use them. Set aside time and money to teach people how to use the tools, what they’re supposed to do, and how they can work with other systems and processes.
To get more people to use your app faster, it’s best to start testing while you’re still evaluating sellers. Your team can better adapt to the changes if they know about them early on.
Remember that each team will need a different amount and kind of training. Make sure you have a plan for ongoing help and teaching.
Once you have complete freedom, come up with a pricing plan.
Once you’ve set up your system, hit several onboarding and value achievement goals, and ensured that everyone on your team is fully trained and on board, you can build based on pricing transformation.
Regarding price, you can change your plan based on what the software tells you about the market, what customers want, and how well you’re doing.
Test, make changes, and improve.
We’re living through pricing change in real-time, just like we’re living through digital transformation as a whole. So, it needs to be watched and adjusted all the time.
- Get information on how well your pricing plan is working.
- Compare the KPIs you set in step 3 to how well your sales and operations run.
- Write down what customers say
- Ask team members for feedback on how well the software works.
- Figure out how much money different price strategies make you.
Make changes to your pricing plan, tools, or types of content that may work better in certain situations based on what you’ve learned. Also, never forget how important it is for teams to work together and talk to each other.
Software is needed to change prices to digital ones.
Of course, software is the main thing that makes digital pricing possible. If you want to be successful, you will have to buy the right tools at the right price.
When changing prices digitally, the most essential tools to think about are:
Set up, price, and quote (CPQ)
Modern pricing is based on configuration, price, and quote (CPQ). It will help your sales team set up complicated bundles of goods, services, and deals for your clients. Or, if you put it on your website, your users will use a product configurator on their own.
The CPQ is an integral part of buying and selling because it controls how your sales team and customers interact with your goods and priced items. That means it’s the most essential tool in the group.
Find a CPQ system that…
- Works with your billing, CRM, and ERP tools
- It has all the tools you need and almost none of the ones you don’t.
- It’s simple for your team to learn and use
- Automates with little or no code
- It gives you thorough information about sales and prices
For example, you might need a tool that lets you handle subscriptions if you run a SaaS business. If you run a contract manufacturing business, on the other hand, you might need a tool that lets you see your products in 3D and connect your supplier portal to your WMS.
The study of business intelligence
Business intelligence tools help you gather data from across your company, organize it, and look at it. This includes information about sales, marketing, customer feedback, internal routines, and market trends.
Your data team will use BI to get insights that will help them set prices, find growth chances, and predict future trends.
Intelligence about competitors
What competitive intelligence is all about is knowing what other businesses in your field are doing with their goods, services, and prices. You want to find market trends, the best ways to do things, and places where you can be different from others.
To help you change your prices, competitive information tools can:
- Keep an eye on the prices and changes of your competitors over time.
- Figure out which of your competitors’ goods or services are doing well.
- Look at how customers respond to their prices, such as through online talk and reviews.
You can keep an eye on market share, brand recognition, and other things that affect your prices indirectly with the help of a good competitive intelligence tool.
Analysis of Prices
Pricing analytics tools are for Pricing transformation, like business intelligence tools, but they only look at data related to prices. They help you look at customer behavior, competitor prices, discounting, sales success and trends, and more.
Pricing data can help you understand:
- What services or goods are selling well, and what aren’t?
- Where you’re losing sales because of prices
- How do sales affect the bottom line?
- How prices change and how much demand there is for your products
Then, this information can be used to help set prices in the future and find places where more improvement is needed. Some CPQ systems, BI tools, and billing software have price analytics built in. You can also get tools that do this on their own.
How will AI change prices in the future?
There is already a lot of support for changing prices digitally. And AI will have an even more significant effect on business as it keeps improving.
For a quick look at some of the ways AI is being used to make prices better, here they are:
- Real-time pricing optimization (where machine learning algorithms track demand in real-time and change prices to match; this is popular in e-commerce, airlines, and hotels)
- Dynamic pricing (looking at how customers act and how sensitive they are to price to set the best prices at the right time)
- Predictive price (using past data and AI to guess what customers want, how well sales will go, and what other companies will do).
- Contextual pricing (using multiple types of information to make quotes and offers more relevant to each person)
- Calculations of profitability (for example, to make the most money when quoting complicated goods)
With modern pricing tools, you can also be more open with your customers about how much your products cost.
People are less likely to think they’re getting a good deal if they don’t know what they’re paying for. With today’s pricing tools, it’s also easier to ensure that your prices match the value of your products. Because price and worth are closely linked, this makes the customer experience better and keeps them for a long time.
