Matrix vs. Negotiated Pricing ? What's Right for Me? ? Pricing ...

While there are dozens of pricing models companies use to go to market, the majority can be placed in two categories ? matrix and negotiated pricing.?With matrix pricing, companies group customers into categories based on attributes such as customer size, region, etc., and provide a distinctive price or discount list for each customer category.?Each customer and prospect is then assigned to one or more matrixes with appropriate prices and discounts.?With negotiated pricing, individual product and product group prices and discounts are negotiated with each customer in the form of contracts, price agreements, spot deals, etc.

With many companies going to market with both approaches, they often ask the question ?Which model is more profitable and most importantly which model should I drive business toward???The simple answer is that to extract maximum profit from each transaction, pricing should be negotiated for each deal to take advantage of all the information available for a specific customer, product and transaction.?Now, we all know that the pricing world is not so simple.

Consider the case of a high-tech manufacturer that sells products through a direct sales force, as well as channel partners, VARs and distributors.?For this company, 90% of its business flows through individual negotiated deals as the pricing matrix is not granular enough, and the pricing is out of market.

Using my argument above, this is close to the ideal scenario.? However, as a result of the sheer number of deals and a complex, inefficient process, the time-to-quote lags the competition and results in loss of business.?Here we run into the caveat necessary for my earlier argument ? efficient and effective deal negotiation process.

In the absence of a streamlined negotiation process supported by technology and automated price recommendations, the company runs a risk of poor and inconsistent customer service, which results in high price dispersion. It also discourages partners and customers, which ultimately negatively impacts both revenues and profits.?While the optimal solution is to increase the efficiency and effectiveness of the negotiation process, my recommendation would be initially to focus on improving the price matrix, as it can usually be executed faster than an overhaul of the negotiated processes.? Once the low-hanging fruit in matrix pricing is addressed, I would focus on all the necessary components of the negotiation process, such as organization, delegation of authority, workflow, technology, etc.

Transactional pricing should be the ultimate goal for the majority of companies as they take advantage of their big data. Nonetheless, there is a place for matrix pricing, which can bring significant dollars to both the bottom and top lines if properly executed.? PROS has helped companies progress further along the pricing maturity curve by optimizing both processes.

What is your focus?

Martin Simoncic

Martin Simoncic serves as vice president of professional services at PROS. He has led PROS customer implementations in numerous industries, including petroleum, chemical, oil field services, office products distribution and shipping services. Prior to joining the company, Simoncic worked in the transportation industry where he developed integrated pricing management and optimization systems. He earned an M.B.A. with a concentration in logistics and finance from the University of Arkansas, and a B.S. in computer information systems from Louisiana Tech University.

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Source: http://www.pricingleadership.com/matrix-vs-negotiated-pricing-whats-right-for-me/

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