Industrial service providers sell through a mix of recurring contracts (with prices fixed in advance) and spot deals with ad-hoc quotes. The following table presents top challenges in pricing & revenue management and key benefits delivered by OP for Business Contracts.
Top challenges
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Benefits delivered by OP
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Complexity managed by “rule of thumb”
- Production capacity is fixed whereas demand varies by period, location, type of service.
- Cost depends upon capacity utilization, size of production batches and the possibility to group different order batches in the same production cycle.
- It is possible to differentiate price according to delivery time: a longer delivery time providing more flexibility to group order batches in the same production cycle thus permitting to increase capacity utilization and to reduce unit costs.
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Precision quotes
For each deal (new business, business extension, re-negotiation):- Simulates the expected margin taking into account the intended rate plan, the cost model and the order profile (i.e. type of service, period, location, batch size and time of delivery…).
- Compares price with competition
- Recommends optimal price after review of different order profile scenarios
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Uncontrolled discounting in the field
- Due to pressure on prices, discounting is a key lever used by account managers to close deals.
- This generates price inconsistency and disparities between customers that cannot be explained by tangible factors.
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Score and workflow to drive sales behavior
- The score reflects the quality of each deal according to the applicable pricing policy
- Pricing workflow permits to get the different validations and approval for price exceptions. They may involve different stakeholders: sales, pricing, operations,credit control, billing
- Result is eradication of unjustified discounts
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Contract compliance risks
- Price is fixed whereas order profile is uncertain- Many contracts have actual volume lower than expected or changes in order profile with negative impact on profitability
- Adjusting price of contracts showing deviance with initial assumptions has a significant impact on margin
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Systematic contract monitoring
- Enables to seize all re-rating opportunities- Compares on an on-going basis actual order profile with committed profile. Any deviance is reported through a system of alerts
- Recommends the rate plan that corresponds to customer’s actual order profile
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