Price Optimization For Configurable Products: 6 Common Obstacles

August 13, 2015 Russ Chadinha

Whether you’re managing made-to-order products or bundles and bills of materials, configurable products pose a number of challenges when you want to implement price optimization technology.

This article looks at six common obstacles, and then offers five tips for using price optimization with complex product configurations.

First, the six common obstacles:

1) No predefined SKU: A configure-to-order (or made-to-order) product lacks a predefined SKU, and that’s a problem. Price optimization engines use SKUs to gather historical transactions and analyze that data to determine the suggested or recommended price.

2) Unique or esoteric parts: If the product involves components or parts that you don’t sell separately, the pricing software doesn’t have enough to go on to offer meaningful pricing guidance. For unique parts, there’s not enough data to support some price recommendations based on individual parts.

3) Uneven component data in kits or subassemblies: Companies may sell individual components, but also combine them in subassemblies that aren’t sold as finished goods. When you use these subassemblies as part of a bundle or bill of material, the uneven data points in the configured product create lots of problems for a pricing engine.

4) Customer-specific configurations: As with unique parts, when a configured product is only available to one customer, you lack sufficient data for pricing recommendations.

5) Vast number of possible configurations: Managing the sheer number of possible combinations and permutations in a configured product is often a real challenge for sales configuration engines. That’s especially true when you need to manage all of the associated dependencies and rules.

6) Multiple sales channels: When you’re selling configurable products through partners, e-commerce and direct sales, it’s often difficult to harmonize all of these channels.

For many organizations, the solution to these obstacles is to implement configure, price, quote (CPQ) tools. These solutions make it much easier to create accurate quotes for complex, configurable products.

In addition to CPQ, here are five tips for giving your sales team a real competitive advantage:

1) Clarify the type of configuration that’s involved: There are two basic types of configurable products. “Made-to-order” products consist of customized, unique solutions that can’t be broken down into individual components with their own SKUs.

With bundles and bills of materials, on the other hand, you assemble a series of finished goods (components) into a final product. Each of those components has its own price and could be sold independently in some other package or sales configuration.

2) Ask, “Is configuration necessary?” It may be possible to create sweet-spot configurations that meet the requirements of most customers. Bundling those together and making SKUs for those configurations makes it much easier to start driving a preferred solution with strong pricing guidance.

3) Identify all relevant variables: With complex products, it’s easy to overlook variables that should be taken into consideration with pricing optimization. Scientific analytics are a great way to prove what’s important in setting the price so that you get an accurate recommendation.

4) Make sure you understand the willingness to pay: For bundles, willingness to pay is set at the line-item level. For configure-to-order products, you need to determine willingness to pay at the attribute level.

5) Don’t assume CPQ doesn’t apply to you: These types of solutions have been used to drive meaningful improvements in revenue margin performance across a wide range of industries, from oil fields to communications. You don’t want to be left behind just because you think CPQ doesn’t apply to your specific situation.

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