Zilliant and Industry Expert Concur: Price Optimization Crucial to Profitability in an Economic Downturn

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Differentiated pricing key to maintaining margins.

The challenge and opportunity extends beyond the sales force

Zilliant, the leading provider of price optimization and management software, recognizes the growing evidence of a looming economic downturn, including a noticeable dampening of corporate earnings. The start of a down cycle always highlights a fundamental yet unresolved question: must corporate profits contract in lockstep with the overall economy? Surprisingly, the answer is "No," at least not for individual companies. Maintaining margins in tough times is possible, but only for companies who effectively differentiate and optimize prices.

"Risk aversion is a common negotiating behavior that can have a dramatic effect on prices and margins," said Loren Williams, Ph.D. in Economics and vice president of pricing science at Zilliant. "When demand is down, fear of losing the deal can lead sales people to give bigger price concessions than necessary. Price optimization moderates this behavior by giving them market-aligned pricing guidance, instilling sales people with the negotiating confidence they need to capture as much price and margin as possible."

Waning business cycles inevitably put pressure on revenues and margins. One of the main sources of margin erosion in business-to-business (B2B) markets, where prices are negotiated, is the tendency to over-discount. The collective effect of sales people "doing whatever it takes" to win deals and protect market share in contracting markets creates a downward profit spiral that can drag entire industries into the red if left unchecked.

"Cool markets require cool heads in price negotiations," according to Thomas Davenport, a leading business consultant, author and Harvard Business Review contributor. "Even during tough economic times, some areas and some products will still be doing well. There is no reason why everybody should get the same price. Dynamic and differentiated pricing should be the order of the day." 1

New B2B pricing techniques enable companies to effectively differentiate pricing even in the face of intense market pressures. The key is replacing pricing guesswork with data-driven guidance and insight. Price optimization software utilizes transactional pricing data to determine what pricing should be based on specific market conditions and deal circumstances, helping sale people capture the best price possible on every deal. The return is pure profit that drops straight to the bottom line.

"The challenge and opportunity extends beyond the sales force," continues Dr. Williams. "In a prosperous economy, market growth hides a lot of sins, allowing firms with inferior pricing capabilities to meet expectations. When growth stalls, firms' relative pricing effectiveness becomes much more apparent. Price optimization is a natural leverage point for management, helping them make the most profitable pricing decisions and trade-offs across the entire business."

When the economy shifts gears, market dynamics such as costs and prices change very quickly. Manually administered price policies and margin goals, usually set at a highly aggregated level, quickly become stale. Price optimization detects changes in market conditions through frequent data refreshes, as often as nightly. This enables firms to respond rapidly, keeping prices tightly aligned to fluid market conditions.

About Zilliant
Zilliant is the leading provider of pricing software for manufacturing, distribution, high-tech, and industrial service companies. Zilliant Precision Pricing Suite (ZPPS) uses existing transactional data to improve decisions across all facets of price analysis, setting and execution. ZPPS applications combine powerful price segmentation and optimization science with easy-to-use business applications to help companies achieve the best pricing possible on every deal, increasing profits by tens of millions of dollars. Headquartered in Austin, Texas, Zilliant is a privately held company. Investors include Austin Ventures, Cardinal Ventures, JP Morgan Partners, SMH Capital and Trellis Partners. For more information contact Zilliant at 877.893.1085 or visit http://www.zilliant.com.

1The Next Big Thing, blogsite of Thomas Davenport

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LORI PIENING
Zilliant
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