Article written by Quantiz’s founding partner – Frederico Zornig

Up until three years ago, prices were predictable, reasonably stable, or less volatile, supply chains were relatively balanced, and the buying behavior of customers and consumers, although constantly evolving, followed an expected trajectory.

However, once the world was affected by Covid-19, what we knew about managing prices was thrown out the window. We were forced to change prices at an unusual frequency, work with fluctuating raw material costs, a challenging macroeconomic environment, and customers and clients quickly migrating to online purchasing channels.

In a new unstable scenario like the one that seems to be the new reality, companies will depend even more on a more assertive and dynamic pricing management. Some fundamental pillars for capturing market value remain, for example, a clear and well-defined pricing strategy and respective market positioning are the starting point.

Defining the best method for setting your sales price also requires a correct self-analysis because not every product or service has customer differentials that allow the use of Value-Based Pricing.

Often, allowing us to work with prices in relation to the main competitor (when we have reliable information) ends up being a more profitable way of pricing. Using analytical models based on cross-elasticity, which define our main competitors and how vulnerable we are to their price changes, combined with Break-even studies, allows us to make precise decisions about our own price movements.

The foundation for any good pricing management process is associated with a good, updated, easily accessible database with relevant information for pricing issues, including marketing, sales, finance, and even supply chain. Nowadays, data lakes are available, but few companies transform the amount of data they have into information and knowledge for decision-making.

Going further, sophisticating the ways we do business or negotiate prices with our customers can be a lever to change the game and strengthen relationships. It is common in the market to observe companies delegating this definition of discounts and incentives to the commercial area, failing to seek a more strategic approach in negotiations when we offer incentives connected to the buying behavior of the customers we want to encourage.

We can also work with price optimization, in the appropriate dynamics for each business, using Price Response Curves in B2C, when prices are published and visible, or Bid Response Curves in B2B, when we don’t have much visibility into market prices. In both cases, we can establish what we call the Optimal Price Range, with lower limits maximizing sales volume (revenue) and upper limits maximizing margins (profit).

All of this can currently be supported by pricing algorithms running in real-time on artificial intelligence platforms such as Amazon (AWS) or Microsoft (Azure). In other words, the time has passed when companies needed to invest millions of dollars to implement pricing software or even be held hostage by a SAAS solution to manage and optimize prices.

With the democratization of technology available today, all that is needed is to want to develop an internal customized solution and excellent results can be obtained for a fraction of the cost required to do so. Not to mention the advantage of building and mastering all the knowledge of what is being processed with your data and information.

The governance of all the activities listed in this brief article should be the responsibility of a Pricing and Revenue Management area, duly structured with clear and well-defined roles within each organization. Some have a more centralized area with greater decision-making power, while others may be more decentralized and act more as support to other areas. Each case is unique and the company’s level of maturity allows us to find the best format.

Finally, I believe that everyone who has made it this far understands the importance and potential that Pricing and Revenue Management can bring to their company’s results. The topic has gained relevance in this turbulent moment we are experiencing and due to the greater competitiveness of the market, I understand that every day it will be even more valued by companies that really want to come out victorious.