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Posts tagged ‘price optimization’

Oct 19

What’s New In Gartner’s Hype Cycle For CRM, 2019

  • Worldwide enterprise application software revenue totaled more than $193.6B in 2018, a 12.5% increase from 2017. CRM made up nearly 25% of the entire enterprise software revenue market.
  • 72.9% of CRM spending was on software as a service (SaaS) in 2018, which is expected to grow to 75% of total CRM software spending in 2019.
  • Worldwide spending on customer experience and relationship management (CRM) software grew 15.6%, from $41.7B in 2017 to $48.2B in 2018, and is projected to reach $55.2B in 2019.
  • Salesforce dominated the worldwide CRM market with a 19.5% market share in 2018, over double its nearest rival, SAP, at 8.3% share, according to Gartner’s market share estimates.
  • CRM revenue in 2018 is comprised of software and services revenue from Customer Service and Support (35.7%), Sales (25.9%), Marketing (25.4%), and Digital Commerce (13%). These four categories together comprise the customer experience and relationship management market, according to Gartner.

New technologies are proliferating across the CRM landscape, driven by the need every business has to understand, communicate, serve, and strengthen customer relationships. Gartner’s decision to create its first-ever Hype Cycle for CRM Sales Technology, 2019, reflects the widening spectrum of new technologies being introduced to improve sales effectiveness while improving operational efficiency. Gartner’s Hype Cycle for CRM Sales Technology, 2019 is based on an update to their Hype Cycle for CRM Sales, 2018.  Gartner’s definition of Hype Cycles includes five phases of a technology’s lifecycle and is explained here.  The Gartner Hype Cycle for CRM, 2019, is shown below:

Details Of What’s New In Gartner’s Hype Cycle For CRM, 2019

  • Four new technologies are on the Hype Cycle for CRM, reflecting enterprises’ need for greater integration of diverse systems and the demand for more predictive and prescriptive analytics-based insights. The four technologies include the following:
    • Blockchain for lead generation. Gartner sees the potential for blockchain to provide a decentralized peer-to-peer network model that supports exchanging data to the highest bidders using smart contracts. Gartner predicts this approach reduces or in some cases eliminates the need for a centralized authority such as a data intelligence solution. It also allows for a new ecosystem of managing, sharing and monetizing data for revenue-generating purposes.
    • Knowledge graphs for sales. The ability to build an AI-enabled knowledge model of real-world entities and their relationships to one another, expressed in a data schema, shows potential to increase sales effectiveness. Gartner predicts this emerging technology provides organizations with the ability to create data-driven sales organizations using graphs arranged in a network of nodes rather than in tables of rows and columns. The significance is the ability to correlate sales activities and benchmark against performance metrics in a more digestible and insightful way, which is often too complex for human analysis.
    • Digital adoption solutions. Gartner sees potential in this technology to improve the adoption of multiple tools across a selling and marketing organization. Digital adoption solutions enable sellers to onboard more quickly and improve productivity.
    • Relationship intelligence. By relying on machine learning, sales organizations can map out their universe of network connections, both internal and external, to identify potential avenues of engagement with any prospect or client. Gartner sees this as useful in its ability to provide warm introductions or even referrals for revenue-generating activities while reducing sales cycles.
  • Gartner predicts the following five technologies will deliver the most significant transformational benefits to selling organizations in 2 years or less. The five most transformation technologies in the near term are the following according to Gartner:
    • CPQ Application Suites
    • Digital Content Management for Sales
    • Lead Management
    • Partner Relationship Management (PRM)
    • Price Optimization and Management for B2B
  • The following CRM technologies have gained wide usage and adoption in the last year, as reflected by their position on this year’s Hype Cycle. Data intelligence solutions for sales, CPQ application suites, digital content management for sales, and sales KPI analytics are among the most adopted mature technologies on the hype cycle today.
  • Visual configurators have moved at a much faster pace to mainstream adoption along the Hype Cycle this year. Gartner credits visual configurators’ rapid adoption rate to how the majority of them are now embedded or easily integrated with configure, price, quote (CPQ) applications, or in digital commerce sites. State-of-the-art visual configurator are enabling engineering, production, and sales to become real-time collaborators in creating new products. For additional insights into visual configurators, please see How To Make Complex CPQ Selling Simple With Visual Configurators published earlier this week.
  • Algorithmic guided selling is now listed as obsolete. Gartner has re-assigned this technology as it’s now an embedded core capability in many CPQ and sales force automation (SFA) applications. By doing this, Gartner is saying it is doubtful algorithmic guided selling applications will be sold stand-alone in the future.
  • Social for sales and predictive B2B marketing analytics are off the CRM Hype Cycle. Gartner has chosen to merge them into the data intelligence solutions for sales market. Social for sales is more of a process, not a technology market. The majority of social for sales-based strategies are executed over social networks that have the audience and scale to make them succeed, with LinkedIn being an example. Gartner believes the predictive B2B marketing analytics vendor landscape has shrunk and is not a viable market long term, as they have seen inquiries regarding market share in this area steadily drop in this area since 2016.
  • Gartner is seeing two main drivers of investment and innovation in CRM in 2019 and beyond. The first is digital optimization or a process and program of using digital technology to maximize existing operating processes and business models. The second is predictive/prescriptive-enabled technology or technology using capabilities such as machine learning that provides predictive signals and prescriptive “next best action” recommendations. Please see their research note, 4 Key Insights from the Gartner Hype Cycle for CRM Sales Technology, 2019, for additional details.

Sources:

4 Key Insights From the Gartner Hype Cycle for CRM Sales Technology, 2019, published October 2, 2019

Hype Cycle for CRM Sales Technology 2019, July 10, 2019 (Client access required)

Oct 11

How To Improve Your CPQ Pricing Strategies

Manufacturers can get more than their fair share of channel sales and margins by improving price management for every dealer, distributor, and reseller they sell-through. It’s possible to expand earnings by 50% on slight increases in volume when pricing is consistent channel-wide. McKinsey’s latest research on the topic, Pricing: Distributors’ Most Powerful Value-Creation Lever, shows how the highest performing distributors use pricing to create value. For manufacturers competing for more sales through distributors, they share with competitors, improving their channel partners’ margins is the single best strategy to win more sales and long-term loyalty.

  • A 1% price increase yields a 22% increase in Earnings before Interest & Taxes (EBITDA) margins for distribution-based businesses.
  • It would take a 7.5% reduction in fixed costs to achieve the same 22% increase in EBITDA that a 1% increase in pricing achieves.
  • A distribution-based business would need to increase volume by 5.9% while holding operating expenses flat to achieve the same impact as a 1% price increase.
  • Channel partners are more loyal to margin than manufacturers, which is why price management needs urgent attention on CPQ roadmaps.

CPQ Strategies Need To Deliver More Margin Back To The Channel

The typical manufacturer who has over $100M in sales generates 40% or more of their sales through indirect channels. The channel partners they recruit and sell through are also reselling 12 other competitive products on average. Which factors most influence a distributor or channel partner’s decision to steer a sale to one manufacturer versus another?  The following are the steps manufacturers can take now to improve price management and drive more channel sales:

  • Upgrade the pricing module in CPQ to deliver more than configurable price lists to include pricing waterfalls, automated approval levels for pricing requests, and discounts. Distributors drive more deals to manufacturers whose CPQ systems are designed to give them greater freedom in tailoring pricing to every customer and selling situation they have. Automating approval levels using machine learning-based supervised algorithms that serve as pricing guardrails on every quote a channel partner creates is proving effective at delivering a 1% price increase which drives margin back to resellers. The more a manufacturer can make margins flow back to its channel partners, the faster the channel partners can grow. The following graphic from McKinsey’s latest pricing research illustrates why.

  • Distributors will drive more deals to manufacturers who automate pricing approvals, guiding their sales teams to the largest and most profitable deals first. One of the best ways to compete and win more deals through channel partners is to achieve the ambitious goal of delivering pricing approval within seconds on a 24/7 basis. Pricing needs to provide guardrails that guide channel sales reps to the largest, most profitable, and most ready-to-buy new and aftermarket sales opportunities. Manufacturers capturing more channel sales are relying on machine learning-based pricing systems that optimize price approvals while recommending only those new and aftermarket deals that will drive a 1% or greater price increase. Machine learning is making solid contributions to automating pricing approvals. It’s proving most effective when it is balanced with the flexibility of responding to subjective competitive situations where pricing on specific products need discounts to win deals in aggregate. The following workflows from Deloitte explain how this is being accomplished today:

  • Helping distributors solve sales compensation problems by improving price management drives more deals in the short-term and keep distributors in business long-term. Distributors start out building their sales comp plans on volume and growth alone. The problem is comp plans reward revenue growth at the expense of profits. That’s making it harder every year for distributors to stay in business. Manufacturers delivering new pricing management and optimization apps in their CPQ platforms need to provide real-time guidance on margin potential by the deal, pricing waterfall logic that includes margins, contract pricing overrides for margins and more if they are going to help their distributors stay in business.

Conclusion – Pricing Is the Engine Powering CPQ’s Market Growth Today

Manufacturers who excel at growing indirect product and services revenue through channels realize that every one of their channel partners is more loyal to pricing and margins than any specific vendor they resell. Providing a CPQ application or platform they can personalize, and automate workflows is just the beginning. The bottom line is that manufacturers need to put more intensity into improving pricing today if they’re going to hold onto the distributors they have and attract new ones.

Pricing is the primary catalyst driving the CPQ market’s growth as well. According to Gartner, the CPQ grew 36% in 2017, reaching $1.084B with the majority of growth attributable to cloud-based solutions. It’s no wonder CPQ is considered one of the hottest CRM technologies for the foreseeable future, projected to grow at a 25% Compound Annual Growth Rate (CAGR) through 2020. Supervised machine learning algorithms capable of providing guardrails in real-time for every potential deal a reseller sales representative has is what’s needed to protect a distributor’s margins. Winning more deals with channel partners starts by respecting how vital margins are to their success and improving pricing management as part of a broader CPQ strategy that delivers results.

Sources:

Configure, Price, and Quote (CPQ) Capabilities: Why the right CPQ capability is key to transitioning to a flexible consumption model, 8 pp., PDF, no opt-in, Deloitte, 2019.

Pricing: Distributors’ Most Powerful Value-Creation Lever, McKinsey & Company, September 2019.