What is a Real-Time Pricing Engine?
If you are responsible for the P&L or commercial operations performance within your organization, it’s likely that the term “pricing engine” is a familiar one. However, precisely understanding the necessary performance standards, integrations, and data processing and calculation capabilities that both define best-in-class and fit the criteria of one company is not as easy. At its most concise:
A pricing engine is a system of record that can hold all your price records and is used to calculate and deliver prices to any commercial system in real-time.
Why is a Real-Time Pricing Engine Necessary?
Traditionally, pricing engines have existed within ERPs. They house the data and logic that generate the final price that is presented to a customer in any channel. For example, a pricing engine may house list prices, country list prices, customer agreements and discount or override structures for negotiations off list price.
Or, a pricing engine may house pricing that serves as the starting point for building up prices based on dynamic cost changes, multipliers, taxes, fees, tariffs or other charges. It may house complex price logic such as customer and order-specific or customer-specific discounts. Each time a transaction or order requests a price, the pricing engine must follow the declared price build and arrive at the right price that should be presented to the customer.
How companies structure price builds varies widely, and it's not uncommon for one large company to have many pricing engines with different types of price builds.
However, the digital age has completely overwhelmed the capabilities of traditional pricing engines housed within other systems, and as such, companies are increasingly seeking a faster, more flexible, and higher performance alternative.
Companies require a Real-Time Pricing Engine to meet the demands of the digital age. Best-in-class pricing engines are built on a cloud-native platform with a highly available API.
An application like this can execute real-time price calculations (or real-time price builds) in response to calls from any commercial system, incorporate an unlimited number of disparate data sets into the pricing engine, perform complex calculations on demand, and enable real-time price delivery back into commercial systems.
Read more: Real-TimePricing Engine
Trends Impacting the Shift to Real-TimePricingEngines
Now that we have level-set the term, we can explore the need. Two factors are at play: The rise of digital commerce and the limitations of ERP systems to execute price logic quickly enough to calculate and deliver prices in real-time.
Read more: How to Counteract Inflationary Pressure
Gartner explains the convergence of these two factors well within the firm’s “Harness the Core Capabilities of a Digital Commerce Platform” foundational report.
It states that pricing is a key component of any digital platform which “may need to be real time if pricing is highly dynamic. Real-time integrations to ERP are fraught with performance risks, so often caching layers or other forms of ERP protection must be in place.
[The] interaction of pricing with promotional engines can be complex and must be approached with caution. Pricing management is an area of growing sophistication and disruption. Third party point solutions are often required to take advantage of innovations.”
Certainly, the price optimization and management industry has growth exponentially in terms of sophistication, disruption and innovation. In recent years, the need for companies to provide real-time pricing to customers has grown acute, but how has this trend converged with others? Let’s dig into how the rise of digital commerce and the limitations of ERP systems have resulted in a burgeoning demand for real-time pricing engines.
Pricing& Digital Commerce
The rise of digital commerce, accelerated by the global pandemic, taxes even the most highly equipped pricing teams as they try to ward off competitors and build brand loyalty. Price transparency is now commonplace in B2B due to eCommerce ubiquity and if it takes weeks or months to update pricing, maintaining competitive pricing is impossible. eCommerce pricing must be dynamic; it’s no longer an option.
Dynamic eCommerce pricing in B2B, however, is not as straightforward as it is in the consumer world. Amazon may be able to review pricing on thousands of products within two minutes, but that is child’s play in the world of highly negotiated B2B pricing. Presenting a price online comes with a host of questions:
- Is this a known customer with a pre-negotiated price?
- Is this a new, unknown customer on the open web?
- If a known customer, is this new or existing business?
- Are the prices aligned to what salespeople are quoting?
- If online customers call sales reps for a quote, will pricing be aligned?
- Can customers counter pricing online? Can price negotiations be automated?
- If my costs change daily, can I update pricing immediately across systems?
Determining what price to show in different scenarios is complicated and often requires the execution of a complex price build inclusive of taxes and other fees or to discount to the appropriate net price based on a set of well-defined price rules. Layer in the need to update pricing quickly as the market, competition, or other factors necessitate, and the complexity will quickly overwhelm any pricing team with only manual tools at their disposal.
eCommerce also presents a host of new, interesting data sets that can inform online pricing strategies. Companies must be able to capitalize on the many forms of valuable eCommerce data that they collect. This means the ability to dynamically adjust prices based on cart abandonment, pageviews, inventory availability, quantity breaks or discounts, and instantly calculate and deliver eCommerce prices.
Housing complex price logic and enabling real-time retrieval, often in very high volumes, within ERP is increasingly infeasible. Most large B2B companies rely heavily on ERP systems to act as their pricing system of record, the engine containing all their price logic.
Read More: Pricing Pains are Hiding in Your Dated ERP
While this paradigm may once have been sufficient, companies increasingly find that these systems are unable to price quickly enough to meet today’s demands. The number of calls and calculations needed in complex omnichannel environments completely overwhelms the traditional ERP system. This is especially true for companies that have multiple ERP instances, each containing some amount of price logic. They simply can’t service all the requests coming in from eCommerce, CPQ, CRM, and other applications in a dynamic fashion.
Instead, a centralized management application like Zilliant Price Manager™ can replicate the ERP’s pre-existing logic and, when enmeshed with Zilliant Real-Time Pricing Engine™, can execute price calculation and data lookup logic dynamically.
Additionally, with a better management tool at hand, pricing teams can easily sandbox pricing changes such as looking at the future KPI impact of changing list prices and experimenting with category discounts and comparing the outcome without affecting in-market pricing. It’s a much more flexible approach to ensure pricing meets complex market dynamics and customer expectations in real-time across channels. Companies can completely relieve their ERP of its price execution responsibility, therefore cleaning and speeding up mission-critical pricing functions.
With a robust pricing engine at hand, it’s possible to do this and so much more. Innovative companies are intelligently validating customer-specific pricing logic – tens of thousands orders daily – to confirm that incoming customer orders match the agreed-upon prices, route to the correct approver and direct any price mismatches to the appropriate person to be addressed immediately.
A pricing engine provides the flexibility and practicality to retrieve prices from a price optimization and/or price management solution without physically loading or transferring files from place to place. Similarly, prices can be called on from any CPQ, eCommerce, or ERP system without delay or manual administration. This is music to the ears of B2B pricing and sales leaders who are looking to dynamic pricing to remain competitive in the hyper-charged digital marketplace.
Marrying Speed with Intelligence
An important distinction to remember is that a real-time pricing engine is not simply an API passing data back and forth. It must also be able to calculate complex price formulas, perform data lookups and execute decision logic in a fraction of a second.
For example, as the demand for self-service in B2B increases, more companies are using real-time pricing engines to enable Intelligent Automated Negotiation. This strategic enhancement to the deal-making process sets pre-defined rules on what prices can be auto-approved without human intervention. This gives sales reps, partner resellers and customers the flexibility to negotiate within a range of prices that still maintains necessary margin levels and escalates customer counter-negotiations quickly and efficiently when needed.
The best way to consistently execute automated negotiation at the scale and speed users require is with a dedicated real-time pricing engine. B2B pricing complexity is too intense to rely on anything less. In this case, the pricing engine performs lookups and complex calculations automatically.
Real-Time Pricing Engines in the Real World
B2B companies from a wide variety of industries are already realizing benefits from making a pricing engine — that exists outside of their ERP — integral to their commercial environment. Here are just several use cases from Zilliant’s customer base.
This multi-billion-dollar flooring provider was dealing with a large number of incoming orders and was seeking the ability to automate some order review and routing activities. Now, they are able to automatically validate that orders match agreed-upon pricing in real time and route to the correct internal order approver. If mismatches are detected, the order is routed elsewhere to be approved or addressed with the customer.
Zilliant’s Real-Time Pricing Engine™ now processes upwards of 15,000 requests per day, while giving the internal teams the flexibility to change workflows and approval levels quickly and easily, which use to take weeks or months to complete in the previous system.
Power Management Company
This global company required real-time pricing across multiple channels for different audiences, both internal and external. With thousands of deals happening daily, and raw material cost fluctuation conspiring against a dynamic pricing strategy, it tapped Zilliant to deploy its Real-Time Pricing Engine™.
In conjunction with Zilliant Price IQ® and Price Manager™, the engine is now providing market-aligned prices that account for critical price logic in real time to both the company’s Oracle CPQ application for its sales reps and its bid management system for contractors and suppliers.
Electrical Products Manufacturer
Over time, this manufacturer’s daily price quote request volume grew exponentially, with distributors requesting up to 40,000 highly complex quotes per week. Manually responding to each quote with consistent pricing and deal standards became impossible.
The company worked with Zilliant to employ Intelligent Automated Negotiation. The pricing engine executes decision logic and offers up prices at the time of quote. The results have been stunning: sub-second response for small quotes and less than 10 second response for 1,000-line quotes have added up to approximately 650,000 automated quotes per year with an average response time of 1.3 seconds.
A real-time pricing engine is the answer to these growing concerns emanating from B2B companies of all stripes:
- “I need a better place to store and manage my price records and calculation logic outside of my ERP”
- “I need a better option to calculate and get prices to myCPQ, CRM oreCommerce site in real-time”
- “I need to empower customers with more self-service and reduce manual effort”
- “I need all of this to be secure, scalable, highly available and high-performing”