eBook: Decision Complexity in B2B

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With over 20 years of experience, Barrett has helped
businesses with complex negotiated environments
achieve rapid and effective margin improvements.
Having delivered optimization solutions in industries as
diverse as semiconductor manufacturing and building
materials distribution, there are very few pricing
challenges Barrett hasn't encountered and solved.

Table of Contents
A. Untangling the Sources of Complexity
B. Causes of Massive Complexity
C. Unmasking the Character of Complexity
a. Overwhelming and Unfeasible Volume
b. Critical But Hidden Nuances
c. Coping via Myths
D. Humans are Error Prone
Barrett Thompson E. The Silent Suffering of Your P & L
GM, Pricing Excellence Solutions F. Sound Like Anyone You Know?
G. Take Action Today
©2013 Zilliant Incorporated, All Rights Reserved Worldwide

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Over the past decades, modern B2B enterprises
have done a marvelous job managing complexity
in their physical operations by taking advantage of
new technologies. Yet for these same businesses,
a massive new complexity remains unaddressed.

This new complexity faced by B2B companies is
called DECISION COMPLEXITY, and nowhere is it
more evident than at the intersection of sales and
pricing.

Profit improvement through better pricing springs from one simple idea: That different
selling circumstances can command different prices in the marketplace even for the same
customer and product. Most companies offer variable pricing, but few are managing this
complexity with the expertise and confidence required to get ahead.


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Three major trends are responsible for the
exponential growth in DECISION COMPLEXITY within
VOLATILE
B2B.
ROAD
AHEAD
First, the size of product catalogs and customer lists
has grown rapidly, creating more questions for sales
teams.

Second, go-to-market methods are increasingly more diverse. Channels, promotions
and price types continue to expand, along with ambiguity about how to price them.

Third, volatility of costs, demand, prices and competitive behavior within the market
add a layer of dynamic uncertainty to the landscape. It’s simply impossible for your staff
to keep up.


5

Market dynamics have resulted in a huge
proliferation of complex decisions that is
best described as a perfect storm of
Size, Subtlety and Myth.

Overwhelming and Infeasible Volume

There are so many decisions to make, perhaps far more than is realized by those not on
the front lines.

A B2B business with 125,000 SKUs and 40,000 customers has a decision matrix of roughly
5 BILLION potential price decisions that could arise. In practice, it will make nearly 9
MILLION PRICE DECISIONS DURING THE YEAR. And the rate of growth in these
complex decision points is accelerating each year as the business serves more customers,
expands the product catalog, and responds to more volatile market conditions.

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Critical But Hidden Nuances

There are many valid influences which
“With priceresponsive to the
are more
optimization, we

should affect the price decision each and tens of thousands of
every time, and some which shouldn’t.
customer quote requests
we receive each month, and
Today’s B2B markets are highly
dynamic and understanding the correct
do a better job keeping our
set of influences to apply is a constant prices in line with market
moving target. But your business won’t
wait for you to play catch-up – you need
dynamics.
”
the best answer fast. Kristin Johnson-Holz, VP of Marketing
Schneider Electric NA


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The price influences active in B2B sales Typically the most critical part of
can span a wide range: setting prices is overlooked – the
combined impact on the P&L from each
• Product attributes individual price decision. That’s very risky.
• Customer circumstances
• Order characteristics
• Market trends

Identifying which influences actually
make a difference in price, and
quantifying how much they matter, is
subtle and far beyond the capability of an
unaided person.


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Coping via Myths
Faced with the overwhelming size and subtlety of managing MILLIONS of complex
decisions, many people fall victim to myths. One common myth is that each customer
shows the same price sensitivity for every product he purchases whenever he
purchases it.

Experience in dozens of pricing implementations confirms just the opposite – an
individual customer will have varying sensitivity to price for each specific product he
buys. Shouldn’t your prices reflect that?


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When making MILLIONS of complex price decisions
every year, your employees introduce price errors
without knowing it. The price they actually charged
doesn’t match the price they could have charged, to
still win the business.

This is not a shock – no human could possibly
evaluate all the relevant influences, identify the truly
important ones and balance them in just the right
way to make the best possible decision each and
every time.

Compounding the complexity, many different people
are making pricing decisions in your business, each
with varying degrees of knowledge about the market
and your P&L objectives.

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The most common pricing error in B2B is underpricing due to the increased pressure
to win business and meet quota. While the impact of underpricing just one transaction
may seem small, the cumulative impact across MILLIONS of transactions is very large.
In a well-known study cited in The Price Advantage, for the top 1,200 global companies
in aggregate a …

… IMPROVEMENT IN THE AVERAGE
PRICE RECEIVED WOULD YIELD NEARLY
IMPROVEMENT IN GROSS PROFITS.

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Many companies acknowledge the Price is an incredibly powerful lever to
potential power of price, yet are afraid improve profitability. The cumulative
to raise their prices because they don’t impact of pricing errors is so significant
have accurate predictions about what that if you don’t stop them, profits gained
will happen to their P&L. elsewhere in the business can be
completely wiped out
Some issue general on the P&L.
guidance to “get
prices up” but then Ignoring pricing
abdicate to the field, errors puts a huge
who habitually price drain on financial
the business into performance and
well-worn puts your business at
grooves such as risk.
cost-plus 20%.


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B2B companies will continue to see growing DECISION COMPLEXITY as a result of
increasing product portfolios and customer counts. This underlying complexity is
magnified many times over as you attempt to price your products into increasingly
dynamic markets. This complexity is one of size and subtlety – MILLIONS of decisions to
be made, and many contributing factors which should influence the decision outcome.

What influences matter,
and by how much? What
is the best and fastest


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Advances in predictive algorithms can
equip B2B companies to handle the
millions of accurate pricing decisions Contact Us Today to
required in the field. Learn How to Better
• Business users bring their expertise Manage Your Decision
around current objectives and price
strategies.
Complexity
• The price optimization engine calculates
better selling prices across the entire
business.
The forecasted margin and revenue impacts of these prices are known before enacting
price changes, and unlimited scenarios can be created and compared to arrive at the
best overall prices. This combination of “EXPERTS + EQUATIONS” ensures you’re
setting scientifically accurate price points that are aligned to your business goals.


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Zilliant provides B2B companies with data-driven guidance, enabling smarter pricing and
sales decisions to help businesses make their numbers. The Zilliant optimization
platform uses advanced science in its price optimization applications to enable
companies to overcome the massive complexity in their businesses. Our flexible SaaS
model allows customers to quickly and confidently improve their financial performance
by integrating into existing systems and processes. Learn more about how Zilliant helps
companies price more profitably and sell more effectively at www.zilliant.com.


eBook: Decision Complexity in B2B

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eBook: Decision Complexity in B2B