B2B Customer management – the pricing challenge
In a direct distribution environment, there are typically three channels for sales and ordering:
- The direct salesman
- The call center
- The ecommerce channel.
The function that often creates the most challenges for the B2B area is pricing, since in a B2B environment:
- Pricing can be account specific, volume related and may also contain promotions, which might be order, brand, customer, channel or time specific
- The pricing needs to be aligned to the back end billing engine and, depending upon the accounting rules applied, may require an exact match to a number of decimal points
- Price increases, either industry or tax motivated, are having an impact on the re-ordering process and are forcing companies to think carefully about the relationship between their back end systems and the ordering engine
- In a global platform, pricing tends to be localized, and may be at the discretion of the salesman.
From a platform and architecture point of view, customers, prices and products are normally mastered in the back end billing and ERP systems, often with a manual override if bespoke prices have been agreed with a customer.
The growth of digital channels is having an impact on this model as:
- Consumer and competitive pressures are driving more rapid changes in pricing, as consumers become more price conscious and will move between channels or seek offers. This is driving the same behavior from B2B customers
- Movement of customers between channels means that pricing needs to be systematic across channels, making it more difficult to offer bespoke pricing
- Salesmen are being brought into online sales management tools, such as Salesforce.com, and expect to manage their pricing and promotions within those tools and go on to place orders on behalf of their clients electronically
- Ecommerce is becoming a growing opportunity as even small retailers are happy to engage in an online sales and order process, particularly if it is mobile enabled.
In response to this we are seeing companies considering a number of architectural options for addressing the pricing and ordering challenge:
- Implementing a separate pricing engine to manage the Configure Price Quote (CPQ) process, which underpin the lead to quote steps of the process. These tools force the organization to systematically define the pricing rules and how they can be applied. These tools are often driven from the implementation of a new sales management process and system, as a key step in digitally enabling the sales force. They become the master of the pricing so that the billing engines then have to accept inbound prices, associated with a quote, rather than calculate the prices themselves. We are seeing a growth of these tools in the service industries, such as telcos, for large account based pricing.
- Consolidation and re-engineering of the pricing engine in the ERP platform, this requires common templates to be defined and implemented. It then presents performance challenges as front end digital channels then require real time pricing and quotes to be generated, producing new performance demands on the ERP platform. The fact that ERP platforms are not by their nature loosely coupled means that it is difficult to segment the load which creates a significant cost of scaling to meet the new demand. We have seen extreme mechanisms of getting around this challenge, which have involved implementing a copy of the ERP pricing elements in the front end digital channel to guarantee a match to the back end pricing. This though is only justified for very large volumes as the implementation and maintenance cost is high. An alternative approach is to look carefully at the end to end system design and consider performance enablers such as caching to improve performance without large scale back end system upgrades.
- Implementation of new ecommerce platforms, to create a customer portal. These platforms have typically come from a B2C background and hence will have an inherent pricing capability. These platforms can then act as a form of master for the customer portal, if a limited set of pricing and products is offered through that channel to simplify maintenance.
- Make the customer portal the hub of a multi-channel model. The customer portal becomes the primary channel and master. Salesmen and call centres can be added on to that channel, using a ‘buy on behalf of’ function on the platform. This has the attraction of ensuring a seamless cross channel, single view of customer activity, transactions and pricing. This then enables more effective sales and marketing. This model also protects back end ERP platforms from a large number of real time calls.
The management of pricing for B2B customers is an area that is rapidly evolving across industries, as a consequence of the growing impact of digital channels. In our experience we can see a number of lessons learned:
- Accept and manage complexity, most organizations have a range of back end platforms and front end channels which will be rapidly evolving. As such there is no simple solution and any solution needs to focus solving specific business issues within a sound architectural construct
- Segment the problem, a solution for SMEs may be quite different to a solution for regular account customers versus large scale corporate customers.
- Business problems need business solutions: A separate pricing engine may generate a small delta to the price calculated by the billing engine. Post billing reconciliation may have a far lower TCO than forcing an exact match between the quote and the bill. Thus pricing solutions need to be seen in the context of accounting rules.
- Focus on a seamless multi channel future: The adoption of digital channels in the B2B space is moving quickly, as consumers move their personal digital expectations to the workplace. As such any solution should consider how it can migrate to support all customer channels in the medium, rather than the long term.
- Leverage technology which can start simply and evolve: Given the area is changing then the focus needs to be on implementing loosely coupled components which can start simply and grow, in sophistication and scale.
To address the problem we would thus recommend:
- Develop a high level approach to the business problem, addressing the lessons above, which considers both the business and technology capabilities required.
- Define a high level roadmap for addressing the solution and build a business case for the first steps along the journey
- Start the journey using a test , learn and evolve approach
This blog post is the personal view of the author and do not express the views or opinions of Capgemini.