Toxic Pricing and Global Price Consistency

As I was looking up flights for my vacation later this year, I navigated to my favorite airline’s website to search for tickets. I remembered a friend telling me to check international websites [...]

iStock_000057022470_XXXLargeAs I was looking up flights for my vacation later this year, I navigated to my favorite airline’s website to search for tickets. I remembered a friend telling me to check international websites of airlines, sometimes offering better prices for the same flight. Lo and behold, this pricing inconsistency saved me $400 per ticket to Europe.

This kind of inconsistent pricing is not isolated to airline tickets or consumer purchases. In my last blog post, I spoke about the billions of dollars that semiconductor companies leave on the table every year due to ineffective opportunity-to-contract processes that erode average selling prices.

Inconsistent global pricing and poor price concession controls are two big culprits of this price erosion. Customer product pricing should be dictated by the specifics of the price agreement, quote or contract with the customer.  Whatever the price that was set, there’s absolutely no reason that the price should change as it goes around the world.

Global price consistency means you have a price for a customer and that is their price.  It doesn’t change when they go to Europe, it doesn’t change when they go to Asia or the US.  Companies who don’t have the tools and processes in place must rely on the discipline and best intentions of regional sales personnel in the organization.  However, with people in many different locations, it’s very hard to achieve that consistency.  If you add up these inconsistencies, they usually equal quite a lot of money.

Toxic pricing is another practice that should be eliminated by every semiconductor manufacturer and, in doing so, can result in recouping millions of dollars.  Toxic pricing occurs when someone gives discounts they shouldn’t.  An example would be giving preferential discounted pricing to poor performing customers.  Every manufacturer has different discounting thresholds.  Generally, the more proprietary the product, the tighter this threshold is.  Regardless if it’s a proprietary or commodity product, there’s usually a discounting bottom line that should not be crossed.  Deals that go beyond this bottom line are the outliers that should be scrutinized on a case-by-case basis.

Eradicating price erosion begins with a few basic steps. Consider these starting points::

Align resources – sales, sales operations, channels, marketing and pricing organizations need to function as a single team and work towards the same goal.  Success should be measured by a common list of attributes that is being tracked.

Measure and eliminate toxic pricing – Improving visibility and control into the discounting process will help you address these issues.  This involves the analysis of order and POS data and correlates it to the original contract for the end customer.  Going forward, controls will need to be in place so that unnecessary discounting cannot take place without proper approvals.

Business process and tools mapping – A robust price rule management tool can streamline business processes and enforce pricing consistency throughout all regions, speeding quote turnaround time and eliminate any price inconsistencies.

By using the right tools and processes, semiconductor manufacturers can eliminate toxic pricing and enforce global price management.  Interested in learning how you can quantify how much you are leaving on the table?  Sign up for a free  two-day value discovery workshop.

Stay tuned for my next installment in this series where I’ll discuss the other issues causing revenue leakage.  Have a question about global price consistency or toxic pricing?  Join the discussion in the comments section.

Ranbaxy Moves to Model N Revenue Management for Unified, Global View of Revenue Life Cycle

As industry evolves Model N’s proven and established solution for generics manufacturers continues to attract global leaders REDWOOD CITY, CA – July 15th – Model N, Inc. (NYSE: MODN), the leading [...]

As industry evolves Model N’s proven and established solution for generics manufacturers continues to attract global leaders

REDWOOD CITY, CA – July 15th – Model N, Inc. (NYSE: MODN), the leading revenue management solutions provider to the life science and technolog   khgv y industries, and Ranbaxy Pharmaceuticals Inc. of Jacksonville, Florida announced today that Ranbaxy has selected Model N’s revenue management suite to improve financial controls and gain a more unified global view of its revenue lifecycle. Ranbaxy will be replacing its existing legacy point solutions with Model N’s global end-to-end solution to support their strategic direction as the company responds to tremendous consumer demand for its affordable generic medications.

“For Ranbaxy, we recognized a clear need for a global, end-to-end system that provides more clarity into our revenue management processes, driving improved financial control and business value,” said Valan Joseph, vice president of IT at Ranbaxy Inc. “Model N’s proven technology supports the needs that are specific to our generic pharmaceutical business and will enable us to respond to changing industry regulations quickly and effectively, all with the ability to manage these processes across our global infrastructure.”

Growing Industry Demand of Platforms for Global Growth 

Generics manufacturers have achieved remarkable success in getting affordable medicines to patients. Global and competitive pressures such as rapidly-growing emerging markets, product mix diversification, and new products with barriers to entry (e.g. biosimilars) have not made this an easy feat. As companies continue to scale, industry demand for business platforms that can support global growth is accelerating.

One of the top challenges faced by manufacturers is finding the balance between growing market share without succumbing to severe industry price erosion. According to the U.S. Food and Drug Administration, generic drugs usually cost a fraction of the price of brand-name drugs, as much as 80 to 85 percent less. Competition in the generics market is driven by the patent expirations of branded drugs which triggers a race to bring out generics to the market quickly at the most competitive price. Besides the pressure from insurers, managed care organizations and government entities are pushing hard to control healthcare costs. Manufacturers need a revenue management platform that supports frequent contract and pricing updates, multifaceted and varied discounts, as well as complex incentive-based deal structures. Model N has built its products with this knowledge, supporting its customers through these industry challenges.

Model N Revenue Management Leads Adoption in the Market 

Model N’s deep expertise in life sciences includes a number of existing customers in the generics industry, including Par Pharm, Actavis, Teva, Lupin, and Endo. After 15 years of working with the most well-known names in the space, Model N leads adoption in the market this year with seven out of the top 10 investments by the life sciences industry in revenue management solutions. A key factor in Ranbaxy’s decision was Model N’s proven experience in replacing legacy systems with its integrated revenue management platform. Model N’s methodology provides a safe passage for customers by incorporating data mapping, migration and conversion tools, solutions to address critical gaps in legacy applications, and expert knowledge gleaned from past customer conversions.

 

“We continue to see the trend of adopting an industry standard end-to-end revenue management solution as the cornerstone of a successful revenue growth strategy in the life sciences industry,” said Model N CEO, Zack Rinat. “Ranbaxy joins a long list of customers who have chosen to convert from inadequate legacy solutions to Model N, and we are delighted with their decision as we will provide them with the competitive advantage they are looking for.”

 

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About Model N

Model N is the leader in Revenue Management solutions. Model N helps its customers maximize their revenue and reduce revenue compliance risk by managing every dollar that impacts their top line encompassing contracting, pricing, incentives, and rebates. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and Technology companies in more than 50 countries. Global Customers include: Actavis, Allergan, Atmel, Bristol-Myers Squibb, Dell, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, and STMicroelectronics. Learn more at: http://www.modeln.com. Model N is traded on the New York Stock Exchange under the symbol MODN.

Legal

 

Model N® is the registered trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

About Ranbaxy Pharmaceuticals Inc.

 

Ranbaxy Pharmaceuticals Inc. (RPI), based in Jacksonville, Florida is a wholly owned subsidiary of Ranbaxy Laboratories Limited (RLL), India’s largest pharmaceutical company. RPI is engaged in the sale and distribution of generic and branded prescription products in the U.S. healthcare system.

Contact

Brenda Christensen
Model N
Tel: 818.307.9942
Email: bchristensen@modeln.com

Amanda Jones 
Connect Marketing
Tel: 801.373.7888
Email: amandaj@connectmarketing.com

Is Your CPQ Solution Running Yesterday’s Technology?

Albert Einstein said, “Any intelligent fool can make things bigger and more complex… It takes a touch of genius— and a lot of courage—to move in the opposite direction.” For me, Einstein’s words [...]

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Albert Einstein said, “Any intelligent fool can make things bigger and more complex… It takes a touch of genius— and a lot of courage—to move in the opposite direction.”

For me, Einstein’s words capture the spirit of the many attempts made to simplify the sales quoting process. I’d wager that most sales people have worked at more than one organization that has thrown yet another spreadsheet into the mix because “it will make quoting easier.” Did it?

When you sell complex products and services, the last thing you need is a quoting process that adds complexity. Manual quoting, which requires the collection of spreadsheets, product sheets and people to reconcile endless pricing variables, leads to complications and costly mistakes. Eliminating these errors is one of the main reasons that forward-thinking organizations choose to automate their quoting process by adopting a configure, price and quote (CPQ) solution. However, it’s not the only reason.

Beyond accurate quotes, sales users also need to quote faster. Automating CPQ can make configuring a product quick and accurate. Just how simple this will be relies upon the rules engine that drives the CPQ solution. Many rules engines make quoting accurate but also more complex than it needs to be.

Most CPQ solutions on the market today use sequential rules engines as the backbone for their solutions. While they’re intended to be simple, the very nature of sequential rules engines increases complexity for administrators and users. Sequential rules engines rely on an explicitly specified order of rules and rule families. In these deployments, the rule firing sequence is critical to accurate configurations and it requires fully and clearly expressed rules for each product and option. In short, there are more rules to write, test and upkeep.

There is a better way. REVVY CPQ leverages a sophisticated constraint rules engine that minimizes the total number of rules needed to model the configuration. This simplifies the process for administrators and sales users, delivering better results.

Let’s explore a couple ways that REVVY’s constraint rules engine outperforms other rules engines.

(1)    Shows what you can do, not what you can’t. Sequential rules engines evaluate rules after an option or product is selected and then allow you to select incompatible or invalid options, which causes sales people to get frustrated, and rightfully so. No one wants to be told after they’ve selected options that the options are not available or not allowed.  The REVVY rules engine already indicates in the UI whether a certain option is valid by only showing the valid options, which saves time and prevents errors.

(2)    Explains invalid options so you can give customers what they want. Sometimes customers want options and products that invalidate other products or options that they still want. REVVY rules engine allows users to see the cause of invalid options and choices to fix all options that might conflict with what the customer wanted.

(3)    Faster response time. Sequential rules engines re-fire all the rules in the same sequence multiple times in an attempt to make up for shortcomings. However, this degrades performance and takes more time. REVVY constraint rules engine detects dependencies and thereby optimizes the time it takes to evaluate all rules. This can as much as half the time it takes to execute results.

It’s not easy to make things simpler. It took genius and courage to develop the REVVY CPQ rules engine. But, it is absolutely worth it. This will make a huge difference for administrators and sales users because simpler for them means better, faster and more effective quotes.

You can learn more about why configuration technology matters and how REVVY constraint-based rules engine outperforms traditional solutions.

Semiconductors – Get Your Billions Back

Congratulations to the semiconductor industry for a record sales year! The Semiconductor Industry Association recently announced that worldwide semiconductor sales for 2013 reached $305.6 [...]

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Congratulations to the semiconductor industry for a record sales year! The Semiconductor Industry Association recently announced that worldwide semiconductor sales for 2013 reached $305.6 billion, the industry’s highest-ever annual total.

 

Before we relish the success of last year, semiconductor companies must ask themselves two questions:  How can we continue to improve sales (revenue)? And how can we keep more of what we’ve sold (margin)?

Studies show that for every $1B in sales, semiconductor and component companies lose as much as $50M annually to lost opportunities, poor volume and price compliance, channel over payments and other forms of price erosion. That means that these companies are potentially leaving up to $15 billion on the table each year.

McKinsey stated that the use of transactional pricing along with value based pricing can help drive revenue increases 2% to 7% for semiconductor companies. They describe transactional pricing as focusing on minimizing the leakage of revenue. This revenue leakage is caused by ineffective processes that are eroding average selling prices in the opportunity to contract process.

If you’ve read our recent #RevNews, you already know that price erosion is costing chip makers an average of 2.3% in gross margin. But there are other significant impacts to the bottom line as well:

•  9% loss because of unmet volume commitments

•  10% lower win rates due to lengthy deal cycles

•  10% overpayment due to errors in reconciling channel incentives

The issues causing this leakage are primarily inconsistent global pricing, poor price concession controls, channel incentives overpayment and unmet contractual volume commitments which are the result of inefficient and silo processes that do not provide visibility and control.

We live in a world where every penny counts. Companies spend enormous amounts of time and money trying to control manufacturing costs and increase their bottom line, only to negate that effort by unnecessary leakage like improperly discounting prices or overpaying channels.

In the next part of this blog, I will continue our discussion on revenue leakage and elaborate on the issues that are causing it. If there’s a particular area of revenue leakage that you would like to hear more about, please let me know in the comments.

You can also learn more about revenue leakage in our upcoming webinar. You’ll hear how semiconductor companies like Microchip and On Semiconductor have reduced revenue leakage in their sales cycles. Register here.

Model N Tackles Life Sciences Regulations changes Head On With Regulatory Update Program

Trusted partner in navigating regulatory change ensures customers stay on top of fast-changing regulations REDWOOD CITY, CA – July 1st , 2014 – Model N, Inc. (NYSE: MODN), the leading revenue [...]

Trusted partner in navigating regulatory change ensures customers stay on top of fast-changing regulations

REDWOOD CITY, CA – July 1st , 2014 – Model N, Inc. (NYSE: MODN), the leading revenue management provider to the life sciences and technology industries, today announced the expansion of the Model N Regulatory Update Program — a program that every Model N Government Compliance customer is automatically enrolled in at no extra charge.

On June 18, CMS announced changes of new fields and features in the Drug Data Reporting for the Medicaid (DDR) system, which will be effective starting July 19 and will impact most manufacturer’s June and Q2 2014 filings due by July 30th. Next on the horizon, the AMP Final Rule will significantly affect manufacturers contracting with the government. The Model N Regulatory Update Program addresses both of these issues.

Over 60 percent of pharmaceutical executives perceive regulatory and legislative issues to be the “most significant barrier to their company’s growth,” according to a study conducted by KPMG that surveyed 107 senior pharmaceutical executives, with 45 percent of respondents working at companies with annual revenues over $10 billion.

Regulatory change introduces complexity and organizational plus reputational risk, where one wrong price calculation can cost you millions of dollars in leaked revenue and enormous fines.

Key Components and Benefits:

  • Swiftly receive Regulatory Update Packs to ensure systems, calculations, and reporting are up-to-date
  • Engage in webinars and events with industry experts to delve into best practices, the impact of the Affordable Care Act (ACA), and how to prepare for upcoming changes
  • Receive regulatory update emails to ensure notification of late-breaking regulation changes
  • Compare and learn from other manufacturers by participating in industry benchmark surveys
  • Influence product direction by providing feedback regarding what additional tools and solutions are needed to effectively and efficiently respond to regulatory changes
  • Access rich resources and videos to better understand vital aspects of regulation changes and their impact.

“Model N is committed to keeping our customers current on required calculations and reporting in the Model N Government Compliance solution and informed of the latest developments in regulations and requirements,” said Dr. Scott Medberry, director of product management at Model N.

Since enactment of the ACA in 2010, Model N has delivered the following solution updates through Regulatory Update Packs:

  • Authorized business user configuration of Medicaid minimum rates
  • Unit Rebate Amount (URA) changes for:
  • New formulations
  • Clotting factor/Pediatric drugs
  • Cap at 100 percent of AMP
  • Line extensions
  • PHS price calculation update
  • 5i Drug Filtering in price type calculations
  • AMP Unit reporting
  • NFAMP/FCP changes for newly launched products
  • Medicaid Record ID and ROSI/PQAS updates
  • ASP Addendum A and DDR product file changes

Connect with Model N

About Model N

Model N is the leader in Revenue Management solutions. Model N helps its customers maximize their revenue and reduce revenue compliance risk by managing every dollar that impacts their top line encompassing contracting, pricing, incentives, and rebates. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and Technology companies in more than 50 countries. Global Customers include: Actavis, Allergan, Atmel, Bristol-Myers Squibb, Dell, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, and STMicroelectronics. Learn more at:http://www.modeln.com. Model N is traded on the New York Stock Exchange under the symbol MODN.

Legal

Model N® is the registered trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

Contact

Brenda Christensen
Model N
Tel: 818.307.9942​​​​​
Email: bchristensen@modeln.com

Amanda Jones 
Connect Marketing
Tel: 801.373.7888
Email: amandaj@connectmarketing.com