February 17, 2015 by The Pricing Authority
In the high tech space, there is greater urgency for value capture optimization due to the following unique challenges:
- Powerful Buyers
- Intense Competition
- Short Life cycles
- Declining Price Curves For End Products
- Complex Go-To Market Paths
- A Historical Bias Toward Marketing Speeds & Feeds vs. Customer Benefits
This combination of factors heightens the need to make accurate and timely pricing decisions, and to be effective in managing the processes required to make offers and execute them through internal systems without error.
Historically, companies have addressed value capture in three ways. First, by standing up a small pricing team that has relatively little authority compared with the amount of revenue and profit they oversea. Second, by investing in pricing execution software that automates the quoting and pricing approval processes.
These first two efforts are important and critical. However, results are often diluted by the lack of true processes and behavior change which neither effort is capable of driving. These pricing teams are consumed by administering an approval process when their true value-add should be in collaborating with the sales teams to craft product and pricing solutions that meet customer’s needs and which provide the company the profit margins it needs to fuel the engine.
Thirdly, companies have traditionally addressed value capture by focusing on the cost side of the profit equation. However, focusing on costs typically results in a downward spiral of ever more Draconian steps to find redundancies and extract concessions from suppliers. This is not a sustainable mode of operation because when all areas of cost improvement are exhausted, companies often turn tot he R&D and product development activities that led to success in the first place.
Next week: we will share the Impact of Poor Value Capture Processes in Part 4 of our Value Capture Series.
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