When companies compete to offer nearly identical products or services, it’s difficult to create and maintain a consistent pricing strategy.
As competitors fight to increase market share and revenue, price erosion sets in, and prices drop across entire industries as the product becomes more of a commodity. This erosion is particularly challenging in innovative industries that have relatively short product lifecycles , such as high-tech companies.
Differentiating your products and services in the marketplace is critical to preventing price erosion. If you want customers to pay a premium, they need to perceive a higher value in your product or service. Otherwise, they’ll simply buy based on the lowest price.
Generally speaking, there are three ways to set yourself apart from the competition: differentiate your product, price or experience. But you might also say that there’s a fourth way to differentiate: the smart way. That’s when you use price optimization and sales effectiveness tools like CPQ to stand out and gain an edge in the market.
1) Differentiate products as flexible and configurable: When you’re offering a complex product with a lot of features and options, a good way to differentiate your products is by presenting them to the customer as flexible and configurable. Instead of offering the product, you’re also offering the ability to structure a solution that’s tailored to the customer’s needs and what they are trying to accomplish.
CPQ (configure, price, quote) tools support your ability to differentiate your product by making it easy to manage the complexity of configuration, breaking products down into technology and features. It also helps your sales reps combine different types of products and services into bundles that are relevant to customer needs, providing a comprehensive solution. This differentiation method isn’t limited to hardware: You could use a similar approach in configuring services such as insurance and TV packages.
2) Differentiate price through pricing guidance: Strategies for differentiating with pricing include offering low-cost, high-volume pricing or niche pricing. While CPQ is able to support these approaches, it offers much more interesting capabilities. When you combine CPQ with pricing guidance, you gain the ability to use product and customer data and analytics to deliver the best market based pricing for a specific product to a specific customer.
3) Differentiate experience through speed and professionalism: Speed is the new currency of business, and offering a faster, more efficient sales process is a great way to differentiate your customer experience. Especially in the quoting process, CPQ helps you deliver fast, accurate and professional quotes that set you apart and make it easier for customers to do business with you.
To grow your revenue and margins, it’s critical to protect your organization from price erosion. While information about price erosion is public in certain markets, it’s difficult for most companies to track — especially for those that specialize in configurable and customized products.
That’s why differentiation is so important. Regardless of whether you decide to differentiate on product, price or experience, CPQ is a great tool that gives your company a competitive edge in the marketplace.