Tighten Cost-to-Serve Recovery
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Best practice No. 3: Tighten cost-to-serve recovery
Many companies consider cost-to-serve items such as freight
surcharges for expedited shipping, technical service costs for design
and product support costs as the costs of doing business. Seldom are
these costs recovered by companies. The result is significant,
unnecessary margin erosion. In tough economic times, it is critical for
companies to tighten the cost-to-serve policies. By classifying
customers into categories such as strategic and opportunistic,
companies need to tighten cost-to-serve policies, ensuring appropriate
cost-to-serve recovery for opportunistic customers while effectively
serving the needs of strategic customers.
Best practice No. 4: Set granular pricing
Most companies today use an average price approach, ignoring the
differences in how the value of their products is perceived across
different segments of the customer base. The result is unwarranted
margin erosion. A better, more effective practice is to identify
fine-grained customer segments based on relevant attributes, and then
set optimal prices and negotiation guidance for each segment. The
optimal prices should be set taking into account a segment's Pricing
Power (the indicator of a company's ability to realize a price change)
and its Pricing Risk (the measure of what is at stake for the
business).
Best practice No. 5: Control maverick selling
"Maverick" selling by sales reps can lead to bad revenue or revenue
resulting from low or negative-margin business. Factors such as
non-existent negotiation policies or the lack of enforcement of current
negotiation policies can drive this maverick behavior. The result is
dramatic variance in margins across similar deals. By establishing
target prices, approval levels and floors, companies can improve the
consistency of negotiations to improve margins and price realization.
For example, an industrial manufacturer used pricing strategies and the
right price management and optimization software to tighten pricing
guidelines and improve price realization by nine percent in less than a
year.
Pricing strategies provide companies with an unparalleled
opportunity to resist downward pricing pressure and preserve margins.
By investing strategically in pricing, companies can dramatically
improve profitability, even in the toughest economic conditions.
Tapan Bhatt is Director of Marketing at Vendavo.
Tapan is responsible for the company's global marketing strategy and
execution. Tapan has over 10 years of experience in product management
and product marketing. Prior to joining Vendavo, Tapan was a director
of product marketing at Siebel Systems. Tapan has an MBA from the
University of Chicago, Graduate School of Business. He can be reached
at tbhatt@vendavo.com.
Tapan Bhatt is Director of Marketing at Vendavo.
Tapan is responsible for the company's global marketing strategy and
execution. Tapan has over 10 years of experience in product management
and product marketing. Prior to joining Vendavo, Tapan was a director
of product marketing at Siebel Systems. Tapan has an MBA from the
University of Chicago, Graduate School of Business. He can be reached
at tbhatt@vendavo.com. 
