Do you know what your Price Matrix is really up to?

OK, let’s admit we all have some areas in our business that get ignored for far too long. We naively think that if we don’t know what the issues really are, they can’t be so bad! Well, that may be true in some areas of the business but it’s undeniably false when it comes to pricing. Why? If you’re involved in selling your gut tells you the reason every day—the quality and accuracy of the price-points themselves means the difference between winning business profitably, winning business at a loss, or losing business altogether. This matters more than ever in the extremely competitive environment we’re in nowadays.

Over the past several years, I’ve seen many B2B companies turn to the power of a price matrix to address this reality for one simple reason: A price matrix can efficiently deliver different prices to different selling circumstances (just what you need), but without the need to stop, analyze, negotiate, and approve each and every deal as an exception when it comes in the door. That’s a huge win from both a sales process-efficiency perspective and profitability perspective because you’re avoiding a major source of margin erosion by dispensing with a negotiated sale and pricing by the matrix.

Clearly the price matrix idea has merit but like a lot of great ideas, the way you go about it makes all the difference. The big problem I’m seeing with the typical price matrix implementation is the operational goal of the matrix program is all wrong—the unstated objective of the program is to reduce the complexity and effort for the people involved in the day-to-day management of the matrix, rather than to maximize the financial benefit from using matrix pricing in the first place. As a result, the matrix prices lose touch with the market and Sales abandon them in favor of deal-by-deal price exceptions. That seems very backward to me, but I can understand how a company gets into this situation when they have limited resources to maintain the price matrix and only spreadsheet-based tools to keep up with the millions of prices they contain.

What is the current condition of your price matrix program – wonderful, weak, or worthless – and why is it functioning this way? We’d like to understand how pervasive the problem really is among metal building manufacturers, suppliers and contractors. If you’ve been avoiding the whole thing, you’re not alone! But there’s a new reason to be hopeful. Leading companies are using the emerging discipline of pricing science to replace guesswork in the areas that have greatest influence on price matrix profitability: the pricing matrix structure itself, customer assignment to the matrix, and the price point values within the matrix. Results of 5-10% increase in gross-profit dollars are commonly achieved in just a few weeks. Stay tuned for an upcoming feature article that we’ll discuss in more detail.

Barrett Thompson is a veteran business strategist and profitability consultant at Zilliant where he leads the Pricing Excellence Group. Mr. Thompson can be reached at Barrett.Thompson@zilliant.com or at 678-610-3190.

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