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Introduction

The idea behind Negotiation Guidance is intuitive and compelling. When you are facing a new pricing event and need to make a pricing decision, a smart approach is to compare the current situation with the same situation in the past. But here’s the thing: sometimes that upfront price may not be the best option, whether by accident or even on purpose due to special circumstances. It would not be wise to blindly follow his past value into the future.

Now, what if you are dealing with a whole new situation where you’ve never sold that product to the same customer? In that case, you do not get a direct comparison. However, that does not mean you are left in the dark. You can continue to dig deeper to see if you sold the same product to that customer or a similar customer. Considering the price of those models gives you perfect comparisons. And that’s where segmentation comes into play. It opens up a wide range of options, allowing you to explore options and avoid sticking to the same pricing model that may not have worked well before.

The negotiation strategy model encourages you to think outside the box, draw from past experience, and use segmentation to make more informed pricing decisions. It’s all about being flexible, adapting, and finding the best way forward for you and your customers.

Pricefx Solution

In our Negotiation Guidance model, first we provide guidelines on the key attributes that drive prices, called Price Drivers. That way you can better understand if geography, product types or customer segments have a real impact on the prices paid. Moreover, knowing the Price Drivers enables the model to recommend segmentation levels. Of course, you can always select the segmentation level you wish to use, thus allowing for flexibility in meeting your pricing strategies.

Consequently, a segmentation tree is built and provides price recommendations based on the information gathered from each segment. The segmentation levels are usually a combination of product attributes, customer attributes, and can also include selected transaction attributes. 

The fact that we build a segmentation tree instead of considering all the combinations of attributes is crucial. We only go into such depth where there are enough transactions to make an informed decision and we do not have to consider lots of irrelevant attribute combinations. Indicators are provided, so that you can make further analysis to understand consistency of segments.

Ultimately, our aim in price optimization is to evaluate the potential pricing opportunities within each segment and maximize prices wherever feasible. We strive to help you achieve the best possible outcomes through effective negotiation and informed decision-making.

Solution Approach

Negotiation Guidance relies on several steps with them most crucial one being the data quality.

• Data analysis resulting in Price Drivers

• Building a segmentation tree.

• Providing recommendations of floor, target and ceiling as margin % or discount % depending of the selected optimization target. These recommendations are ready to be used in other parts of the solution.

• Each segment comes also with metrics, including elasticity parameters that can be leveraged for some other usage.

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Solution Output

The outputs of Negotiation Guidance consist of recommendations of floor, target and ceiling for either the discount rate or the margin rate. Meaning for each segment defined by a set of attributes and built within the segmentation tree, Negotiation Guidance recommends guardrails: floor, target and ceiling for discount rate or margin rate (depending on chosen optimization target). Ceiling can be considered as the negotiation entry price, floor the walkaway price and target the price on which Sales people should eventually settle on.

That process comes with the benefit of aggregating the recommendations at a segment level and using them dynamically in line with potential changes in list prices or costs.

Each segment comes with elasticity parameters that are computed with segment scope and can also be leveraged for other usage by other modules or models.

Solution Limitations

• Negotiation Guidance heavily relies on getting the right features that impact the price/margin rate or discount rate. If these features are not available or the data are incomplete, output quality will be low.

• At the moment, two optimization targets are supported: discount rate (relying on list price and differentiating prices through discounts) and margin rate (for cost plus strategy). Other metrics at this time (win rate, unit price directly…) are not feasible.

• Negotiation Guidance is intended to provide recommendations by segment and not at a product and customer level (but most probably at a higher level of granularity). The recommendations will not directly include past prices for a specific product and customer.

• There is no out-of-the-box extension point defined for now. If you intend to add specific features, you need to write custom code.

• Data requirements – See here.