In a recent discussion with a customer who had just embarked on a CPQ (Configure Price Quote) transformation journey, they discussed with me their top pain points of the legacy application. The application was error prone and the quote turnaround time could take up to 2 weeks or more, which would cause them to lose out on numerous deals to their competitors. As we dove deeper into the discussion, I realized their legacy application did not support bundling and they didn’t see any reason to implement bundling as part of the transformation. In my opinion, bundling is a key area in CPQ and not maximizing this feature means they risk missing out on a crucial aspect in a CPQ transformation.

How B2B Sales was executed in the past?

Working with Sales teams allows me to witness how much has changed over the last decade. In the past, a sales rep would follow a flat SKU list that the Product team would have come up with and that is updated on an annual basis. They would then cross reference the SKU List with an annually refreshed Price List (most likely in Excel) to extrapolate the appropriate prices. Since the sales rep’s commission are volume or revenue based, they could recklessly apply discounts in order to close the deal. Deal Desk or Pricing team would end up needing to get involved, spending additional time reviewing and approving a lot of quotes before sending them to customers. The end result is that prices would not be optimized with some deals sometimes being sold at a loss, and they could take weeks to close. Customers would not be satisfied as they would have extensive wait times with the need to adjust and re-negotiate back and forth in order to get to the final quote. Often times, the flat SKU quote can be difficult to comprehend and takes significant time to review and approve up the chain. In addition, the professional service/support team has provided additional services to customers without the ability to capture the extra revenue stream.

The Case for Bundles

The innovation of CPQ (Configure Price Quote) is a game changer for Sales teams because it allows for product bundling. Product teams can take advantage of bundles by rationalizing the flat SKU list and coming up with bundles based on customer value instead of managing thousands of SKUs. The sales rep can also simply add bundles and just tweak the configuration instead of spending significant time trying to configure quote from scratch. The Deal Desk or Pricing Team also saves time by no longer having to review the quote’s configuration, and instead quotes can be auto-approved. Customers on the other end can fine tune the quote’s configuration based on their need and/or market condition. In other words, leveraging bundles can significantly reduce the constant back and forth negotiation, the overall quote turnaround time, and improve the customer’s satisfaction.

Leverage Bundles to advance your Pricing Strategy

To achieve contextual pricing (please refer to the image above if you are unfamiliar with this term), the premise is that adding context to your selling process allows a sales rep to price the product according to the customer’s willingness to pay. Since bundles are inherently developed based on its value proposition, it automatically adds context when a quote is built. For example, if a customer is choosing a “premium” bundle, which means they are less price sensitive, then the sales rep should negotiate between the Target Price and the Price Ceiling (Pricing Guidance such as Price Ceiling and Floor, Target Price should be defined by the pricing team). On the other hand, if a customer is choosing a “basic” bundle, they are typically more price sensitive, then the sales rep should negotiate between the Target Price and Price Floor. As a result, your Sales organization can reduce the amount of time to negotiate and your customer would be more satisfied as the price aligns to their expectation. In addition, you can use bundles to complement your up-sell/cross-sell strategy, as well as your service offering by giving your customer the right add-on options to choose from. To close the loop on your product and pricing strategy, you can leverage the win/loss data from the negotiation to continues to fine tune your product bundle and prices.

Value of Bundle

With the latest advancement in communication technology, people are used to getting a rapid response in their everyday life. Your sales rep does not have the patience to fiddle around to play with different product combinations to build their quote, nor should they.

Your customers do not have the appetite to spend days reviewing and digesting your full product catalog to figure out what they want. They want to select a bundle that fits their needs and are willing to pay extra for the convenience if the bundle is able to solve their problems.

If bundling is executed properly, an organization can expect the following benefits:

In summary, if you are not leveraging bundles in your CPQ journey, you are definitely missing out on one of the biggest advantages of CPQ. If you have already leveraging bundles, I strongly encourage you to take the next step of analyzing past sales transaction history to come up with different flavors of bundles that matches customer’s need to maximize CPQ’s value.