An Update on Zilliant (and the B2B Pricing Market, in General)

In this good, bad, and arguably recovering economy, many companies are looking to their pricing strategies and practices as a way to improve profits without necessarily repelling customers. Pricing is an important component of an enterprise’s business processes and financial performance, since companies in many industries can face a variety of pricing problems such as unnecessary discounting and quoting prices below a break-even point.

Perhaps contrary to conventional wisdom, pricing has been acknowledged as the greatest lever to improving profit margins. In fact, pricing can be multiple times more effective than cutting costs according to the proverbial McKinsey study. Many believe that improving pricing is one of the most strategic and powerful ways for companies to improve their business and financial performance via, e.g., recovering costs of goods sold (COGS), shaping demand, speeding up quote time, and reducing invoicing errors. 

A variety of trends are accelerating the need for better pricing including increasingly complex market needs and business models. The evidence for these phenomena can be seen in the uncertain demand for products and services, volatile costs, greater sophistication of purchasers, proliferation of pricing entities and competitive alternatives, growing quantities of enterprise data, and diminishing returns from traditional enterprise applications.

And the Problem with Using B2B Pricing Is What, Exactly?

Yet, companies have significantly under-invested in business-to-business (B2B) pricing, repeatedly resulting in lost profits and customers. One element contributing to pricing problems is the limited visibility into effective prices and margins at the time of quote.

Although business-to-consumer (B2C) pricing remains tricky, it is somewhat easier to achieve, as discussed in my recent series on retail pricing. After all, retail prices and promotional campaigns are visible on the shelves and there is a wealth of consumer goods historical pricing data that is available for an inexpensive fee from various syndication places. We all knowingly pay for obscenely overpriced popcorn at cinemas and beer and hotdogs at sports venues, while tirelessly collecting 50c coupons for supermarkets.

Conversely, in B2B environments, every business transaction and proposal is enshrouded in secrecy, and there is often no consistency in the stock-keeping unit (SKU) pricing that different customers will accept and gladly pay for. The anecdotal wisdom of sales personnel (who typically only remember their last deal), peer pricing, cost-plus pricing, comparison pricing, etc. are all the traditional ad-hoc pricing methods that are proving to be detrimental in this day and age of fickle and sophisticated customers. In addition, a lack of uniform scientific pricing and goals and a lack of complete, relevant, and timely data further add to the pricing problems that most companies in manufacturing and distribution industries face.

The inadequate pricing detriment manifests both in terms of leaving money on the table (in the case of under-pricing and so-called price waterfalls) and disappointing customers (in the case of grossly over-pricing). Price waterfalls refer to the fact that after accounting for discounts, promotions, rebates, chargebacks, and allowances, a transaction’s profitability can be significantly impacted.

Needless to say, pricing management is still poorly understood and often sounds scary to many companies. Granted, sales folks hate “black-box” pricing methods and are not known as the biggest customer advocates anyway. It really takes much education and mindset change to explain to reasonable sales personnel why consistent scientific customer segmentation-based pricing is in their interest in the long run (after a few hit-and-run deals run their course with wised-up customers).

Pricing managements remains a tough sell due to huge change management requirements. Other often reported reasons (excuses) of companies for not having instituted pricing initiatives are as follows:

  • Lack of internal resources

  • Lack (unawareness) of available technologies

  • Fear of upsetting customers (for appearing unethical)

  • Lack of managerial support (sponsorship) and a pricing champion (e.g., chief price officer [CPO] or chief financial officer [CFO])

  • No clear business value

  • Lack of useful qualitative and quantitative pricing data

In a nutshell, most companies in the manufacturing and distribution industries have yet to develop or systematically implement pricing technology solutions that can best meet their business goals and generate optimal prices. As in any other strategic initiative, executives are looking for rapid return on investment (ROI) from pricing as part of their decision-making process to invest in pricing solutions.

To enable this, a framework for rapidly discovering and validating pricing opportunities is often helpful. The idea is to identify and locate revenue leaks via high impact and readily available pricing data elements, i.e., the so-called low hanging fruit. Pricing analytics and visibility that help rapidly define short-term and long-term price waterfalls are all too often the “door openers.”

The ability to quantify these quick operational benefits might then lead to gaining an understanding of the company’s vast data sources and challenges for a broader and more strategic pricing optimization initiative. These early successes might also assure user adoption across the organization.

How is Zilliant Managing?

Since it has been a few years since TEC’s extensive series on Zilliant and B2B pricing trends, I was glad to be recently briefed on the latest developments with the company. Zilliant is an Austin, Texas, United States-based privately-held provider of price optimization and margin management solutions for B2B manufacturing, distribution, high-tech, and industrial service companies.

Zilliant helps about 60 companies achieve the best pricing possible on every deal, agreement, and price list. The vendor's sophisticated software analyzes an array of variables, such as competitors' prices, sales history, and buying frequency, and recommends raising or lowering prices in each competitive situation. Although the suggested changes are small, generally in the range of 1 to 3 percent, they can reportedly improve cumulative profits by tens of millions of dollars.

Much has happened at the company this past year, and I was pleased to hear mostly positive news. Originally mastering the price optimization realm, Zilliant now uses existing transactional data to improve decisions across the facets of price analysis, price setting, and price execution. The price execution capability (i.e., managing price lists, agreements, pricing approval workflows, etc.) was unveiled about four years ago.

One of the biggest developments includes the company re-branding of the less-aptly named Zilliant Precision Pricing Suite (ZPPS) product suite to a more comprehensive three-pronged solution that includes Version 7.0 of Zilliant Margin Maximizer (price optimization), Zilliant Margin Insight (pricing analytics), and Zilliant Margin Manager (price execution/management).

With this re-branding also came the introduction of the company’s software as a service (SaaS) offering, or the subscription-based service of its products.  Hence, the vendor is giving customers the option to either deploy its on-premises software or subscribe to managed services.

Zilliant is the first-to-market, if not the only, company to offer a SaaS model in the B2B price optimization space. With IT spending freezes and the need for rapid time-to-value, companies have gradually become more receptive to a different delivery model. 

About a dozen Zilliant customers have thus avoided capital investments in hardware and software, minimized internal IT efforts, and were up-and-running in a matter of weeks. The economic downturn has prompted the adoption of Zilliant’s SaaS model by B2B manufacturers, distributors, high-tech, and industrial services companies because of their limited IT budgets.

Unforgettable 2009

Over the last year and a half, Zilliant has helped customers to improve financial performance during unstable market conditions, and is currently helping those same customers (along with new ones) to protect margins and capture significant profit gain in a (hopefully) post-recessionary environment. In February 2010, Zilliant reported a strong second half of fiscal 2009. Despite slow economic conditions, the company increased total bookings by 41 percent and increased software license bookings by 245 percent over the same period in the previous year.

In addition, the company doubled its recurring revenues in the fourth quarter alone. Zilliant also gained 15 new customers with eight of those customers signing on with the company’s new subscription-based service offering. Other 2009 milestones included:

  • Vertical Market Momentum -- Zilliant continued to maintain its lead as the vendor of choice within the B2B manufacturing, high-tech, chemicals, and distribution sectors, resulting in over 50 new customer acquisitions worldwide and record breaking attendance at its Executive Summit event series

  • Mid-Market Momentum -- Zilliant secured two new mid-market customers in the building products vertical: a wood products manufacturer and an electrical distributor

  • Continued Growth in Europe and Asia-Pacific (APAC) -- A significant interest from European and APAC B2B manufacturers and distributors for price optimization solutions was a driving factor for Zilliant to open its second European office located in Frankfurt, Germany. The company also signed on two well-known APAC manufacturing customers

  • Industry Recognitions --  Zilliant was recognized with several award wins including Manufacturing Business Technology’s 2009 Innovation Insight Award and Austin Business Journal’s Fastest Growing Private Companies in Central Texas. Zilliant was recently honored on the Supply & Demand Chain Executive 100 list for 2010 for the second consecutive year

  • Educating the Marketplace -- Zilliant launched as an exclusive, free educational resource for B2B companies to have direct on-demand access to dozens of informative and educational webcasts, whitepapers, articles, and case studies from the collective expertise of Zilliant's top pricing consultants, analysts, and scientists.

Still, a Tough Road Ahead (For All)

A number of unnamed and anonymous customers in the above text show another conundrum of selling pricing solutions. Namely, not only that pricing is a tough sell, but is also difficult to obtain reference and case studies from existing happy customers (who are also happy to remain mum about their pricing policies, rather than to reveal them to their direct competitors).

Indeed, many details during my recent briefings with pricing vendors were under non-disclosure agreements (NDA's). In addition, at PROS Pricing’s B2B Pricing Summit at New York Stock Exchange (NYSE) in early 2010 press and analysts were barred from all sessions, including the keynote that was presented by another industry analyst (reportedly after strong insistence by apprehensive customers).

The pricing software and service provider market is still quite fragmented, with no real brand recognition for any vendor per se. Indeed, vendors such as Zilliant, Vendavo, PROS, Vistaar Technologies, Symphony Metreo, and Versata Pricer still have only budding install bases.

On the other hand, a hefty investment in product development and market expansion continues to take place. Recently, Zilliant raised US$13 million from SMH Private Equity Group, ABS Ventures, Austin Ventures, and Trellis Partners, all of which had previously invested in the company. Zilliant, which has 130 employees, has raised about $60 million since its inception in 1999, which roughly translates into a $1 million investment per acquired customer.

Zilliant continues to do well in situations where a business-minded person (e.g., the CPO or CFO) with a profit and loss (P&L) mindset is in charge. Price optimization by Zilliant (or PROS, for that matter) is resonating well with executives that want their companies to make more revenue as the bigger picture perspective. Conversely, if the IT department drives the business decision and the focus is more on pricing processes effectiveness, Vendavo seems to have an advantage, especially in light of its strategic relationship with SAP.

SaaS offerings, partnerships with renowned system integrators (SI’s), and customer references are other order winners in a still conservative buying environment. Good news for all pricing specialist vendors is that companies realize that their enterprise resource planning (ERP) systems are insufficient when it comes to pricing optimization. In other words, a pricing platform lock-down is not demanded by prospective customers, who are even willing to combine best-of-breed price optimization, price analysis, and price execution solutions from different vendors.

Dear readers, what are your views, comments, opinions, etc. about Zilliant’s value proposition and about the pricing optimization software market in general? We would also be interested in your experiences with this nascent software category (if you are an existing user) or with your current (possibly ineffective) practices, and your general interest to evaluate pricing solutions as prospective customers.
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