Pricing Management Vendor Must Show Proven Payback from Clients

Vendavo’s reseller partnership with SAP in providing a price and margin management (PMM) solution has proved to be of benefit to both companies. Vendavo alone has experienced recent strong growth, more than doubling its customer base. Vendavo’s contribution to this lucrative reseller partnership involves the functionalities of three modules in particular: the Vendavo Profit Analyzer, the Vendavo Price Manager, and the Vendavo Deal Manager. Although part one of this article series looked at several key functionalities of each of these modules (please see Provider of B2B Price Management and Optimization Speaks Out), a more in-depth look can offer clients—new, old, and prospective—a sharper picture of how these solutions can help unify business activities and make every transaction more profitable, as well as identify any lingering concerns about the vendor’s viability.

Until recently, Vendavo helped customers improve margins by managing strategic pricing initiatives, setting list prices, managing price lists, controlling margin leakage, negotiating and managing contracts, pricing quotes, tracking pricing performance and customer compliance, and communicating prices across their organizations. In late 2005, the vendor became the first to launch a 64-bit pricing analytics application—Vendavo Profit Analyzer 64—on the market. This solution is a major component in Vendavo’s price management application suite, as it simultaneously provides unlimited scalability and real-time performance.

Until the arrival of Profit Analyzer 64, analytics solutions forced users to make a trade-off between real-time functionality and in-depth data analysis. But in the current competitive business environment, regardless of whether a user wants to negotiate a deal or set prices, he or she needs as much detail as possible, and ever faster. Using averages or aggregates no longer produces the comprehensive insights that are needed in order to make the multifaceted decisions about pricing that impact a company’s bottom line.

Vendavo’s pricing analytics applications were designed to use and support its proprietary Pricemart technology, which allows real-time access to detailed operational data stored in physical memory, and that had not been aggregated before. Real-time performance is also boosted by the inclusion of several advances in optimization for caching and queries. Unlike online analytical process (OLAP) applications (which force users to predefine analyses, break down detailed data into smaller, predefined categories, and then to process those transactions for several minutes—or even hours), Vendavo’s technology provides instant responsiveness and high-volume throughput.

Profit Analyzer 64 enables a practically unlimited number of transactions by getting rid of the 4-gigabyte memory barrier that 32-bit systems impose. Performance tests, using a server with a memory of just 16 gigabytes, emphasize the distinctive capabilities of Vendavo’s pricing analytics solution: handling 100 million transactions with 100 concurrent users, the software can create price waterfalls in three seconds and price bands in four.

Unique in the price management space is the fact that Vendavo’s development investments have always focused on the needs of business-to-business (B2B) corporations. Yet Vendavo’s lack of strong segmentation and pricing optimization capabilities has given the likes of Zilliant and PROS Pricing Solutions a chance to carve defendable strongholds, even within the SAP install base, as reported in the previously mentioned series on Zilliant (see How One Provider's Solution Covers the Bases of Price Optimization and Management). This somewhat undesirable situation for Vendavo has also been aggravated over time by these competitors’ recent improvements to their price execution and enforcements capabilities.

Tackling Segmentation and Price Optimization with Vendavo 6

To help counter its competition, Vendavo’s latest product release, Vendavo 6, has added an important dimension to its software suite, with tools for segmentation, price optimization, and price setting that are envisioned to help existing and prospective customers drive even greater value from their Vendavo investments.

In addition to many improvements that increase the transparency of the pricing processes to business users—while empowering them to make more actionable decisions—the Vendavo suite includes comprehensive B2B pricing analysis and tracking (to identify margin improvement opportunities); segmentation and optimization (to identify and manage segments to execute “fine-grained” pricing); price administration (to administer prices and deliver accurate, timely pricing information); price setting (to determine objectives and set optimal prices and guidelines); deal execution and price negotiation (to arm sales teams with the ability to drive more profitable deals); and a generalized integration layer (to tie pricing to enterprise-wide business processes).

In order to enable any of the above capabilities, Vendavo Process Integration Manager offers a number of out-of-the-box process integration modules that load and cleanse data- and map-pricing processes across disparate enterprise applications (not necessarily SAP’s) and link them to the Vendavo suite. In other words, the suite now combines pricing science (see Advancing the Art of Pricing with Science), pricing best practices, and enterprise-class software to drive incremental improvements in average prices at every stage of the pricing process, from segmentation to deal close.

At the starting block for identifying pricing opportunities is Vendavo Dynamic Segmentation, a module that enables fine-grained pricing. Initial customer segmentation is done via new, sophisticated data mining capabilities; then, users can refine segments on an ongoing basis using statistical analysis. Also, industry-specific statistical models are used to uncover pricing opportunities with a number of patent-pending algorithms for calculating pricing power and pricing risk scores. (For the record, pricing power is a predictive indicator of a company’s ability to change prices in a segment, whereas pricing risk is a predictive indicator of the business risk of changing prices in a segment.)

Vendavo Price Optimizer then transforms the findings of that segmentation calculation run into practical, insightful, and ongoing price-setting activities within B2B environments. Based on the calculated pricing power and risk values, users can then form a pricing strategy matrix in order to align pricing strategy (in other words, to aggressively or moderately increase prices, tighten thresholds, increase scrutiny, increase sales representatives’ autonomy, or maintain current prices), with business objectives for each customer segment. This way, managers can ensure that optimization results tie into business objectives.

The next step is to set prices and guidance via optimization algorithms that calculate prices based on business objectives, while a contextual scenario analysis can further refine results. For example, for a certain product within a certain customer segment, a target price for the sales force could be set at $200.00, while a manager’s approval is needed to allow a price below $185.00, a vice president’s (VP’s) for a price below $175.00, with the rock-bottom floor being set (in stone) at $165.00.

Vendavo has made significant investments in building out its pricing science capabilities. The company has a pricing sciences team consisting of experienced professionals with PhDs and other advanced degrees. This team works closely with customers to deploy Vendavo’s segmentation and price optimization capabilities, as well as drives the related product road map.

Product maturity is crucial in such a “rocket-science” realm—Zilliant admits that it has taken four years, multiplied by dozens of experienced scientists and by over 30 deployments, to work out most of the kinks in its proprietary pricing science. Zilliant also touts more than a dozen customers that have publicly acknowledged the margin lift they have generated as a result of segmentation and optimization capabilities. Vendavo has also made good progress in this area, and the vendor can produce a couple of live references. At the same time, until Vendavo is able to produce a number of segmentation and optimization references from companies (and prove how much profit margin lift those companies have experienced thanks to Vendavo’s solution), there will be some breathing space for the likes of PROS Pricing Solutions and Zilliant.

User Recommendations

The bottom line is that Vendavo has been consistently garnering skills, wherewithal, and customer success in the realms of pricing science, pricing excellence, and global solutions delivery. Existing and prospective customers within Vendavo’s focus industries should thus take note and approach the vendor with regard to assessing the applicability, fit, and maturity level of its entire product portfolio.

As price management is still an emerging and highly fragmented space, selecting vendors based on their viability is nearly impossible, as the space will probably experience consolidation. This is much less of an issue with Vendavo, given its stellar growth path and almost premerger closeness with SAP. Still, appealing projects with a proven payback and proof of concept are advised, as is on-demand deployment where possible. For more general recommendations, see So What's the Bottom Line on Price Segmentation?

This concludes the two-part series Provider of B2B Price Management and Optimization Speaks Out.

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