Deconstructing the “Configure-Price-Quote” (CPQ) Solution
Selling successfully is more and more frequently a matter of handling complexity effectively. Complexity found in product design, the customer organization, pricing practices and regulatory requirements—regulations affecting technology, manufacturing processes, materials or the organizations themselves. Sales configurator software is designed to help address much of this complexity.
It is important to understand the implications of complexity at each of these levels and how CPQ can resolve issues related to that complexity. Let’s take a look at each.
Product Configuration Solution
Companies like to make and sell products that are profitable. Margin can be assured by setting the price for the finished product at a level above the cost of manufacturing and selling that product.
While it is easy to see products in terms of the finished good they are sold as, the reality is that products are assemblies and collections of parts put together in a specific fashion to address a specific need. The ability to use the same part across multiple products builds margin by reducing the relative cost of the part.
For instance, if your company makes hand tools, your product line might have shovels, rakes, hoes, spades and mops. You have designed your product to use the same handle for each finished tool. This saves a huge amount of money.
Companies have found that they can widely expand the useful market for many products by adding a small change, tweak or option to extend its utility beyond the existing use. This is not just done at the high-end or finished-good level. There are layers of goods and assemblies making up complex products that each have some variability within their design that drives them into more specialized use down market.
A product configurator system has to have the knowledge “baked in” at each tier or level of usage—part, subassembly, assembly and finished good. The specification for each of these specific models may seem unimportant until you find out that one is certified for marine use because it has a certain type of washer or another one is good inside only because it is subject to corrosion when exposed to the elements.
The configurator has to prompt the questions that will expose these conditions and drive the selection process properly. It is far more than picking from the available colors or selecting small, medium or large. It is matching need and required performance with capability.
It’s everybody’s favorite topic. Companies set prices in relation to the goals they set for themselves. Pricing is always more than cost recovery and margin. Price should reflect value delivered, and that might involve some scalable elements such as quantities and total order value.
Big-volume customers want big unit-price discounts, and old customers want loyalty discounts in recognition of their long-term relationship with you. If you do business in multiple countries, you will have different prices for different countries.
Pricing configurators have to keep all of this variability in play within their pricing quotation functions. The configurator needs to know what class the prospect or customer falls into in order to pull the correct pricing from the correct price list. Volume discounts combined with national account status combined with country all contribute to and drive the pricing quoted for a given account in a given situation.
Additionally, your pricing configurator must address marketing campaigns, end-of-year discounts and other special pricing.
Complex pricing on top of complex products makes the quotation challenge geometrically more complex than either of the two by themselves. In any sales transaction, there will be several points when the subject of cost or price will be addressed. Early on, it’s primarily a qualifier/disqualifier in the customer’s eyes. As the selling process proceeds, the nature of the solution required begins to be revealed and with it, the price. Finally, the proposal is delivered with a firm price quote.
The quoting solution needs to be more than an online price book attached to a printed form. As the product configuration is defined and the volume of product purchased is established, the quotation system can produce conditional prices or prices based on known factors.
The status of the prospect (GSA eligible, national account, new customer discount, etc.) will drive additional adjustments to the amount quoted. All of that variability makes quoting a very complex process.
The best solutions in this arena integrate all of this functionality into a single interface and system for the user. Linking the application to the CRM system as well as the ERP system offers huge advantages in terms of the individual transaction and the marketing/selling process in general.
Prospects can be identified based on shared attributes identified within CRM. Orders are known well in advance thus alerting the production planning and supply chain managers to pending jobs.
This benefits everybody (Sales, Operations and Finance), and the customers are better served with CPQ.