Real-Time Pricing Strategies Enabled by CPQ Software

June 6, 2024

From e-commerce to manufacturing, dynamic pricing strategies allow companies to respond instantly to market changes, consumer behavior, and competitive pressures.

Real-time pricing (RTP) is a dynamic pricing strategy that involves the use of sophisticated algorithms and data analytics to adjust prices on the fly, ensuring optimal profitability and customer satisfaction.

It’s widely used in:

  • Utilities and energy companies
  • Retail, e-commerce, and online marketplaces
  • Travel and hospitality
  • Manufacturing and distribution
  • Service-based industries like telecommunications and professional services
  • Certain commodities

In today’s article, I’ll explore the transformative role configure, price, quote (CPQ) software plays in enabling businesses to implement real-time pricing strategies.

Real-time pricing is a game-changer for revenue growth.

When businesses have the ability to adapt their prices according to fluctuations in supply and demand, market prices for inputs, and changes in competitors’ pricing strategies, they’re able to make critical changes that, in many cases, can save their business.

Let’s dive into the most essential benefits of real-time pricing for businesses:

Increased agility in the market

Since market fluctuations and competitor actions can immediately shift the demand for your product, being able to change prices instantaneously is crucial. If you can react to competitor pricing changes immediately, you won’t have to worry about them capturing your customers.

For instance, Amazon continuously adjusts prices for millions of products in real time (about 2.5 million times per day). By leveraging advanced algorithms that analyze market conditions, competitor prices, and customer behavior, the ecommerce platform always reflects what the market is willing to pay, or makes improvements to ensure it does.

Improved customer experience

Depending on your industry and customer base, you might want to offer personalized pricing for different customers or customer segments, based on their buying behavior and preferences. With real-time pricing, you can do that.

The process looks like this:

  1. You collect data on your customers’ buying behavior.
  2. Your dynamic pricing tool analyzes this data in real-time, determining which factors are most likely to influence a specific customer’s purchase decisions.
  3. It then curates personalized offer prices based on these insights.

As a result, you can provide your customers with better deals, tailored to their individual needs and preferences. You’ll make more sales (some at a higher price), and your customers will be happier.

Optimized profit margins

RTP helps companies achieve price optimization by changing prices based on costs and demand, even when prices and market conditions change in seconds.

If the market is willing to pay more than you’re selling your product for, raising the price for a short period to capitalize on customers’ increased willingness to pay will help you maximize revenue during those periods. By the same token, reducing prices when there is lower demand allows companies to offload excess inventory and avoid potential losses.

Shifting prices in real-time to reflect this demand means you’ll always capture the most revenue and sales possible. The best example of this is Uber’s surge pricing. During high periods, like rush hours and concerts, Uber increases its prices to balance supply and demand. This approach (a) ensures more drivers are available when needed and (b) maximizes the amount of revenue per ride.

Fewer pricing errors

Pricing automation eliminates manual calculations and ensures consistent pricing across all your different channels. Accurate pricing is especially important if you’re selling on a website, third-party marketplaces, and in-store.

Common pricing errors that come up when businesses frequently change their pricing include:

  • Miscalculating discounts and sales prices
  • Applying incorrect margins
  • Re-pricing items too late or not at all

Real-time pricing automates these processes and bases its calculations off of real-time data, which reduces the risk of human error.

Data-driven decision-making

The software that supports RTP gives business leaders granular insights into customer preferences and behavior, as well as market dynamics and competitor activity. This is exactly what they need to support broader strategic pricing decisions.

Companies can analyze comprehensive data sets that provide a detailed understanding of the impact of various pricing scenarios on sales and profitability. As a result, they achieve greater accuracy in predicting demand and can make more informed decisions about pricing strategies moving forward.

Real-time pricing strategies

To help you understand the concept of real-time pricing and how you can use CPQ software to apply it, here’s a look at some of the most common real-time pricing strategies businesses use today:

Dynamic pricing

Dynamic pricing is the foundation of RTP. With a dynamic pricing strategy, businesses automatically adjust their prices based on demand, competition, time, or all of the above.

There are several forms of this real-time pricing strategy:

  • Surge pricing — Raising prices when the system detects unusually high demand (e.g., ridesharing services during rush hour)
  • Seasonal pricing — Price discounts or increases for a specific period every year, like holidays or weekends (e.g., a retailer automatically reducing summer items in the winter)
  • Event-based pricing — Prices increase or decrease based on specific events (e.g., hotel prices rising for concerts and conferences)
  • Personalized discounts — Dynamic pricing software can also personalize discounts for individual customers based on their behavior or preferences, or a seller can agree to do so if they really want to close the sale.
  • Time-of-use pricing — Utility companies often implement time-of-use pricing, where electricity rates vary throughout the day. Prices are higher during peak usage times and lower during off-peak times, encouraging users to shift their consumption patterns and reducing strain on the grid.

Competitive pricing

With competitive pricing, businesses closely monitor their competitors’ pricing strategies to match or undercut them and gain market share. This is common on major ecommerce platforms like Amazon, but companies have to be careful not to engage in illegal pricing strategies such as price fixing or collusion.

Cost-plus pricing

Businesses using cost-plus pricing set their prices based on production costs, then add a profit margin on top of it. If production costs fluctuate, so will the sale price to maintain the same margin.

While many businesses use cost-plus pricing to guarantee profitability, they don’t always move prices in real time. Businesses selling complex products (e.g., manufacturers) primarily use a real-time cost-plus pricing model because it ensures they’re covering their costs when every customer order is different.

In instances like these, real-time pricing is part of a complex B2B quoting process, and setting optimal prices for different product configurations is essential for achieving maximum profitability. CPQ software automatically handles the cost-plus calculation based on current market prices and overhead, information it gets from ERP and CRM.

Exchange-rate pricing

International e-commerce companies adjust prices based on currency exchange rates. By changing prices in real-time according to exchange rate fluctuations, they maintain competitiveness and profitability across different markets.

How CPQ Software Enables Real-Time Pricing

To achieve real-time pricing, businesses require a powerful CPQ software solution to accommodate a vast range of data. Not all CPQ supports real-time pricing, and even those that do may not have all the features necessary to optimize prices in a complex marketplace.

The following are some of the essential capabilities CPQ software needs to facilitate real-time pricing:

Automated pricing rules and logic

In CPQ’s backend, there’s a set of pricing rules and logic that control price adjustments based on different inputs. An admin configures these based on your business’s unique pricing strategies.

When your sales reps quote customers (or customers buy products themselves), they see accurate quotes and product configurations based on (a) what’s possible to deliver and (b) what you’ve allowed them to offer. Anything outside those parameters won’t be permitted.

With RTP, the process works slightly differently. Instead of working off a seller- or customer-guided process, the software uses real-time product data, market trends, customer profiles, and your profit margins to come up with an optimal price on its own (within your defined parameters). Without interference from a sales rep or customer, CPQ software can calculate the perfect price every time.

Real-time data synchronization

CPQ software integrates with ERP and CRM systems, so any changes to product prices or discount offers can be automatically reflected on your ecommerce website, customer portal, or store. To capture market and competitor data, it also integrates with BI software, data warehouses, and other sources.

Shared data includes:

  • Product information (availability, configurations, and pricing)
  • Customer data (profiles, purchase history, contact info)
  • Transactional info (orders, quotes, invoices, RMAs)
  • Real-time market data (competitor prices, exchange rates, demand fluctuations)
  • Competitor pricing info (via APIs or web scraping)

With integration, it’s all synced bidirectionally, so your business processes keep running smoothly without having to reconcile data across disparate systems.

Dynamic quote generation

With real-time pricing in CPQ, customers receive accurate quotes and pricing estimates as soon as the system runs the calculation. They always get the best price for the time, and you can be sure it’s optimized for your bottom line.

The process works like this:

  1. A customer or sales rep selects products and/or services.
  2. CPQ pulls data from your ERP, CRM, and other sources to verify what’s available and your costs.
  3. It calculates the best price based on real-time data — market trends, competitor pricing, and customer profiles.
  4. A quote, complete with accurate pricing, is generated and can be shared with the customer or turned into an order.

There’s a seamless handoff between the sales team or customer and your order fulfillment team. So you’ll dramatically speed up your quote-to-cash process.

User-friendly interface for sales teams

User-friendly CPQ makes it easy for reps to find your product data, configure products to meet customers’ needs, and get pricing on the fly. It also ensures sales reps offer the right products and services at the optimum price to support your business.

An essential feature to look for here is guided selling. This allows your sales reps to lead customers through complex product configurations, ensuring they only get pricing on options that are feasible and profitable for you. And, it asks questions that help identify the best product for the customer’s needs, making it easier for your team to navigate the platform.

Sales performance analytics

CPQ software provides real-time insights into how your sales team is performing. You can view metrics like quote conversion rates, average order value (AOV), and sales rep performance. By analyzing this data, you can identify areas for improvement and optimize your pricing strategies to increase sales.

Improved approval workflows

With automated approval workflows, you can streamline approval processes for price adjustments. This is especially important in B2B sales, where complex products using a real-time cost-plus model require multiple levels of approval.

CPQ notifies the appropriate leader as soon as a rep creates a quote that falls outside of the parameters, triggering an approval process. They can review it, click to approve, and send it back to the sales rep or customer in a few clicks.

CPQ and real-time pricing give businesses a competitive advantage.

While it doesn’t always make sense to change prices in real time (e.g., for products with long lead times or where costs are relatively stable), businesses that need to respond quickly to market conditions can’t afford to not use CPQ software.

In addition to streamlining the quoting process, it also provides valuable insights and data that help businesses make informed pricing decisions. And, it guarantees customers receive accurate pricing, leading to increased trust and customer satisfaction.

Most importantly, its backend software supports real-time pricing and other tactics (e.g., discounting, dynamic pricing) that help you stay competitive and maximize your company’s profits.

Evaluating different options for CPQ with real-time pricing? Check out my smart tips for selecting CPQ software, or read through our reviews and comparisons to find the ideal CPQ platform for your business.

CPQ Integrations