Research leader Gartner reports the price optimization market is poised to rebound. Driving the rebound is mounting interest among enterprises for improving margins and revenue, increasing responsiveness to market volatility, and extracting greater efficiencies and impact from pricing activities within sales and marketing processes.
Described as a niche market, Gartner estimates that through 2014 investments in price optimization and management software will help increase gross margins, on average, by more than 2%. With management in many organizations grateful to increase margins by even fractional amounts Gartner’s estimate should be quite appealing.
The market is dominated by four vendors; PROS, Vendavo, Vistaar Technologies and Zilliant. In 2008, for example, Zilliant decided to shift from on-premise licensed software to a SaaS model deployed via the cloud. That allowed it to reduce price points and simplify deployment. “That changed the dynamics of the market,” says Greg Peters, Zilliant CEO. It changed the entire economics of price optimization
And the change in the economics has been a boon for those organizations that want to take advantage of price optimization tools. In the past, for example, Zilliant’s typical deal might be for $3-$4 million with half of that being the software license and half being the services required to install, deploy, and integrate everything. Now the typical deal is $400,000 with a setup fee of just over half of that and the difference goes right to the bottom line.
That’s the SaaS cloud advantage. “We calculated it to make sure the customer gets a 10x return each year,” says Peters. Now the company’s price optimization product seems to be a runaway success.
This may have been exactly what Gartner meant when it wrote: This interest in price optimization is increasingly encouraged and substantiated by projects that manage to yield compelling ROI... competing vendors continue to introduce more-comprehensive, prepackaged functionality based on enhancements and experiences from past engagements, particularly in the areas of price analytics and price execution. Gartner might also have added pricing innovation to the list.
There’s no doubt that pricing, especially when talking about B2B deals, can have a lot of variability, especially now with businesses getting more complex and more competitive. Just look at how many sales people, channels, and products you have today, each with its own cost and pricing dynamics and methodologies. An automated tool like Zilliant, however, can calculate elasticity even within the organization’s product segments, whether you are pricing for volume or for margin. Using the software, a sales person can put in an order and the software will find what segment works best. It then feeds the rep three prices; a start price, the typical price, and the floor price.
Here’s what Gartner says about the four main players in the price optimization market:
PROS is a longstanding provider of price optimization, originally in yield management but has diversified into the B2B pricing. Although it started in airlines and hospitality today it has a broad application suite.
Vendavo is distinguished by its strategy to solely concentrate on B2B industries and penetrate corporate buying centers through a close relationship with SAP. Best know in the chemicals industry but is expanding into discrete manufacturing, electronics distribution and high tech.
Vistaar initially focused on helping product marketing, marketing, sales operations and pricing administration departments with managing product portfolios and pricing. Since then, Vistaar expanded to offer a broader software suite and to track outcomes.
Zilliant is regarded for its price optimization software capabilities and pricing science expertise for B2B industries, and, more recently, for its focus on delivering hosted (SaaS) pricing products to a broader market. The vendor now targets manufacturing, high tech, and distribution, as well as industrial and business services.
Gartner actually identifies nine vendors, including big companies like Oracle, in its report, and gave all either a promising, positive, or strongly positive rating. You can buy the report and check them out for yourself or get one of the vendors to give the report to you for free.