What’s the “right” price for a given product or service?
Be sure not to ask someone at Turing Pharmaceuticals, which raised the cost of one drug by 5,500% virtually overnight only to change its mind again after a rabid backlash from the medical community.
But this isn’t a story about healthcare cost politics. It’s the tale of how a 30-year-old software company co-founded by a former Continental Airlines executive helps organizations like healthcare giant McKesson, personal care company Kimberly-Clark, petroleum powerhouse Citgo, and tech behemoth Hewlett-Packard make decisions based on data not just intuition.
That company, Houston-based PROS, sells applications that automate processes such as building a sales quote or suggesting price changes based on current investment conditions. “We’re seeing more interest in organizations wanting to drive more effectiveness and continuity in their sales organizations,” PROS CEO Andres Reiner told Fortune a recent interview. “Gut feel is right, but you want to give them guidance based on market conditions.”
The company more than doubled its customers in 2014; over its lifetime, it has completed approximately 800 installations.
“The software can analyze historic pricing and, through analysis, come up with better pricing for managing margin,” said Gartner research analyst Chris Fletcher. It’s not unusual, Fletcher said, for companies to realize margin increases of 2 full percentage points. Other software companies addressing this process include Austin-based Zilliant, which has raised just shy of $50 million; and Vendavo, which counts Dow Chemical and Medtronic as customers.
The downside: this is not a flip-the-switch sort of investment. It can take anywhere from nine to 15 months to get sales optimization software up and running. “You need some pretty smart people on staff to pull it together,” Fletcher said.
That aligns with the experiences of the pricing team at $15 billion Brazilian food distributor BRF, which uses PROS software to manage the pricing arc for perishables. The longer these items sit on shelves, the less likely they’ll be sold at all. “In the food segment, you have to be very, very fast in your reaction to the market. This really affects your volume pricing negotiations,” said Fabio Freitas, the manager in charge of the system investment. His job was complicated by a merger: the pricing team relies on data from 10 homegrown systems, each with its own unique algorithms.
Using PROS, the company has dramatically reduced the amount of time it takes to recommend and adopt pricing changes: cutting the cycle to three days from 17.
“We found lots of software to help us analyze and price better, but we couldn’t find something else to do the automation part,” Freitas said.
Amazon v. George Orwell: The latest on pricing disputes:
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