Configure, Price, Quote or CPQ technology has been a fundamental business driver for multiple decades already. In the ERP days, CPQ was part of Order Management and served as a back-office tool addressing complex configuration requests from sales personnel and customers, ensuring such requests could be supported and fulfilled by manufacturing. When CRM became a mainstream focus, CPQ tools were used by manufacturers to differentiate themselves by offering configurable product options to their customers, while still relying heavily on ERP for pricing and configuration from a manufacturing perspective.
Since then, and especially over the last few years CPQ has experienced sustained explosive growth. Per Gartner, the market is expected to grow at 20% annual growth rate through to 2020, while cloud based CPQ solutions with a mobile first approach, are expected to drive almost all that growth. Gartner estimates that cloud revenue increased to $157 million in 2015, a 46% year-on-year growth. In my view, this level of growth is largely attributed to the mainstream adoption of Sales Force Automation(SFA) tools used by sales to track and manage pipeline effectively. When combined, these tools enable the ‘lead to close’ process resulting in accelerated deal closures, increased deal sizes, revenue and profitability.
It must be noted that businesses now are using CPQ across all product and solution lines to sell accessories, bundle and configure products and service options – clearly indicating that this is no longer limited to complex deals. We are also seeing much broader industry adoption, moving beyond Manufacturing into High Tech, Healthcare, Lifesciences, Communications, Financial services, and Media & Entertainment.
The conclusion here is that CPQ as we know it today is an indispensable sales execution tool. So, where to from here? What can and should we expect in 2017 and beyond? I see three broad areas where CPQ will continue to drive innovation and increasingly position itself as a core – and critical – business tool.
CPQ: Outcome-driven customer engagement
Perhaps it is time to reassess current CPQ value propositions namely, sales effectiveness and sales efficiency. No doubt, sales personnel will continue to benefit from CPQ in the form of guided selling, automated quoting, workflow based approvals, deal profitability analysis, contract negotiation and proposal generation tools. It is time to raise expectations and leverage deeper value from CPQ.
Digital transformation is disrupting the way businesses function. There is a shift from the traditional selling of products and services, to selling measurable results deemed highly important to the customer. For example, Manufacturers of complex equipment such as tractors may want to sell ‘crop yield’ as opposed to heavy machinery, parts and maintenance contracts to farmers. Other examples include the high technology sector, where “network uptime” is the expected outcome or within the online advertising industry, where measuring ad response rates as opposed to selling ad space has become the norm. Although the practice of selling outcomes is not new and advancements in hardware and software, including smart equipment, imbedded sensors, cloud technology and analytics, have all made it possible to measures these types of “value” oriented outcomes for some time now – the role CPQ to serve as a prescriptive tool is one that has remained relatively untapped.
Businesses – and by extension product and sales teams – will need to continue growing their ability to understand their customers on the most granular level – precisely what outcomes are they placing the highest value on and why. Once this is achieved, businesses then must be able to deliver these outcomes. In addition, they will need to map these outcomes to their ‘solutions’ which may consist of hardware, software and services bundles and/or configurable options, and then, finally, be able to measure those outcomes. You may be thinking that to achieve all this will require extensive customer engagement and tremendous investment of time on the part of sales people to get this right– and you wouldn’t be wrong. This is where innovations in CPQ step in to help.
Imagine if a CPQ tool could assist sales people in translating the expected measurable outcomes and intelligently recommend the top three “solutions” or “offers” with the highest probability of successfully meeting customer expectations? Then, what if a “sales bot” took care of the rest, delivering quotes that were automatically created based on these offers, enabling the sales rep to propose the best offer or directly enable customers to select and add the best offer to their shopping cart independently. Indeed, machine learning techniques would be in play here to drive a deal based on the customer account, entitlements, asset history, competitive landscape, and deal goals etc. Finally, once an offer is accepted, the various front end (SFA, order capture) and backend (fulfillment, finance) processes would be automatically notified to perform the linear quote-to-cash steps. The good news here is that the above scenario has transcended imagination and is today and entirely feasible reality –one that businesses across industries are increasingly implementing as part of the overall business transformation process.
Beyond sales & revenue
The focus of CPQ today, like SFA, is on perfecting sales execution. It has become so much more than just a tracking tool designed to optimize the sale, delivery and billing of a physical product in a single transaction. Digital transformation has disrupted the linear thinking around sales execution, having become much more about maximizing the customer lifetime value and maximizing revenue.
CPQ tools need to be able to sense changes in customer needs, track performance against expected outcomes on existing contracts and proactively recommend the best options at any given point in time. This will enable sales to effectively cross-sell, upsell, upgrade or downgrade solutions to customers, serving as systems of insight and engagement in addition to being a transaction system. It is a circular loop of sense, insight and action that will keep feeding the sell, deliver and bill functions. As a system of insight CPQ tools need to be integrated with price optimization, promotion, rebates and incentive engines, entitlement and order management engines. We certainly cannot under estimate the value of CPQ integration with Order fulfillment, Billing & Revenue management applications. This is particularly critical in the case of companies looking to offer subscription services for physical goods via either direct or indirect channels. Today there is gap in terms of managing order fulfillment of physical goods that are sold as subscriptions and billed on a recurring basis. So companies should look to create a reference architecture for Revenue enabling applications, beyond Sales execution tools, if they want to grow revenue while reducing revenue leakage.
Omni-channel CPQ for a seamless experience
Companies today are very aware of the benefits of omni-channel customer engagement, both in terms of customer retention and customer lifetime value respectively. The time is ripe for implementing a related strategy that supports the sale of complex products and services and any number of combinations thereof – this is where the value of CPQ tied to omni-channel platforms come in. Gartner predicts that by 2018, 40% of B2B e-commerce sites will use some form of CPQ to calculate and deliver dynamic product pricing.
The question is, in the meantime, how will companies benefit from using a single CPQ tool to drive sales and customer engagement across various channels? For one, companies can enhance their customer engagement experience by offering a much broader range of solutions, differentiated using dynamic pricing. In addition to that, they can support multiple engagement scenarios such as self-service or click-to-order for B2C/B2B customers and click-to-quote requests where customers and/or dealers may want to negotiate with a contact or sales center prior to purchase. Companies can engage indirect channel players such as distributors, dealers, resellers and retailers to sell “solutions” while managing price variances based on contracts, promotions, rebates and incentives.
Product marketing and sales operations would love to “model” and roll-out configuration and pricing options for multiple channels, reducing administrative efforts while benefiting from the flexibility to dynamically tweak their product and pricing strategy as needed. For all these reasons, it is critical that CPQ tools support omni-channel customer engagement in addition to the direct/indirect sales driven customer engagement.
In conclusion, we are already seeing CPQ tools establishing a firm position at the forefront of technology innovations implemented to address the needs of digital transformation. As the market evolves and business continue to transform, we will see such tools serving increasingly important roles of systems of engagement, insight and transaction, driving sustained growth, profitability and customer success.
