- WHITE PAPER
- November 2018
Commercial Excellence / Margin Management: Excel or AI?
More than five years ago I implemented a margin management process and team in a large corporate organization.
We were focused on supporting the sales organizations to get pricing right first time rather than to correct the pricing mistakes of the previous twelve months. We were able to forecast a future margin based upon changes to price levels and product mix. Incorporating input from the sales opportunity pipeline, we managed to reach a medium term forecast accuracy consistently greater than 95% the regional level.
This team and the process still exist today. It has just got a lot bigger and has spread across multiple businesses within the group. But really, nothing has changed.
What I mean by this is that the process is the same; the tooling is the same; the skills of the people are the same; and the inputs and outputs are the same.
The tooling is of course Microsoft Excel.
The bigger the uptake of this kind of process, the more difficult it is to manage. People move on, they have their own way of building spreadsheets, they like to modify spreadsheets they have received from others. These behaviors make the consolidation of results and insight almost impossible. For sure, it will take a lot of time and resources to do so, and by the end of it you have probably missed the opportunity.
As you know, the biggest impact from a commercial excellence improvement program comes from pricing. As long as this is planned and implemented in the right way, the results can be hugely beneficial and sustainable. Alternatively, an ill-informed and average approach to price increases can be very damaging to customer loyalty, revenue, and profitability.
The ‘Digital Pricing Journey’ sometimes sounds a bit far-fetched in the industrial world of B2B. However, lots of companies are investing heavily in developing ‘Digital Pricing Roadmaps’. This is essentially a copy paste exercise with regards to the key milestones. The sequence of the milestones delivers the value, but only if this sequence is derived from an intelligent analysis and interpretation of the data available.
What do I mean by intelligent?
From the analysis, actionable data is made available to those who can best make a difference (Marketing & Sales), and feedback loops are designed before implementation to enable learning. This is intelligent analysis.
A client of mine said recently, “pricing is something you have to nurture. Keep it well organized and you will be able to seize the opportunities as they appear.”
With regular intelligent analytical process and ongoing effective sales leadership communication you can significantly improve your pricing effectiveness and margin performance.
In the medium and longer term, a sustainable pricing process needs to be connected to the needs segmentation, product life cycle and value proposition processes. Annual reviews are generally sufficient to ensure that the price positioning balances customers’ needs with the value you can deliver through your products and services.
Our AI Optimizer is better than Excel for improving pricing performance.
We have developed an AI analytical tooling which determines customer, product and channel elasticity across sales teams and regions. This is something that can’t be done with Excel and the AI analysis is very efficient and reproducible. We have called it AI Optimizer.
This AI tooling and supporting process dramatically improves the productivity of your margin management team. Instead of treating them like ‘Spreadsheet Elves’ you can develop them into effective sales support analysts providing smart and actionable input to front line sales.
Artificial intelligence insight alone is not the answer. Gathering market and competitive insights and combining them with your AI analysis provides a strong and confident base for decisions. This is how you nurture your pricing process.
This combination of AI and external market insights can be applied in areas such as internal benchmarking between sales and distribution teams; product introductions; product life cycle optimization; cost of goods increase transfer; tender and contract management; promotion management.
This is how to improve your commercial excellence.
Are you interested to learn more?
SPOSEA is able to support the development and/or the implementation of your pricing strategy and process, through consultancy, digital tooling and interim expertise as required.
Please contact me if you would like any additional information.
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