Pricing pains? More CFOs turn to software for better profits

Fast-growing 'optimization' products often can work, McKesson Medical-Surgical CFO Britt Vitalone learns from experience.

By , CFOworld |  Software

"We see CFOs as the guardians of profitability, and one of the greatest levers they have to guard it with is pricing," says Andres Reiner, CEO of PROS. Reiner sees finance as needing help in dealing with issues like wild commodity-price variations and currency fluctuation, in addition to the normal "transactional basis of how their businesses are charging." His software makes companies more agile, he says, by providing real-time information about "product attributes, customer attributes, and transactional attributes" --- including information about how much the buyer may be willing to pay for various products.

Vitalone says his own unit's small pricing group -- put together after he became CFO nearly three years ago -- started by "stepping back and cleansing our data, which alone can be pretty muddy and unkempt." He found prices "all over the board for similar SKUs, and the question that jumped out at us was why, since there seemed to be no rhyme or reason to it?"

Putting information in the hands of sales people "is something you almost have to do in a business like distribution, where the number of transactions is so great," he says. "To think about how many people you'd need in a centralized location for that work, the economies of scale just aren't there."

'It's All the Same Product'

When it comes to table paper, for example, "it's all the same product," Vitalone notes. "However, you may be dealing with a customer with very high volume, or very low volume. And that's just the starting point for sales people, who also benefit from information about what other customers in the same specialties, in other parts of the country, are paying.

Then, the results are processed nearly real-time, and fed back to the sales personnel in a "constant feedback loop," he says. "That way, the business takes ownership of the data, and information about how customers are reacting."

The finance chief doesn't talk about the increase in margins resulting from use of the software at his unit, noting that "it really does vary widely," and that his segment of McKesson doesn't break out such numbers. "Leave it to say that we did see a marked improvement in our pricing," he says, pointing to an oft-quoted 20-year-old McKinsey study that showed a 1% increase in price delivering as much as a 10% rise in operating profits. "That roughly translates to our experience," Vitalone says.

There is, however, a training side to arming sales people via the technology, in part because so much information makes them analysts, in effect, capable of gaming the system for their own benefit. "There is a big communication aspect to this," according to Vitalone. "Data can be very powerful, but it's also very dangerous."

The Price of an Airline Seat

Originally published on CFOworld |  Click here to read the original story.
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