Today we are releasing the fourth episode of Icertis’ new podcast series, “Contracts Over Coffee.” This series brings together the most influential voices in the Icertis Contract Lifecycle Management (CLM) partner ecosystem to discuss all things related to contracting while enjoying a delicious coffee beverage.
In this episode, our Senior Director of Partner Marketing, Anne Baker, was joined by Ulrich von Beck, Vice President of Strategic Consulting from our partner, PROS.
Here are four key takeaways from their chat:
1. With More Contract Volume Come More Contract Challenges
Anne Baker: What do you think is the biggest challenge with contracting today?
Ulrich von Beck: The sheer volume, as you see large organizations just gathering more and more market share and a much larger customer base. You’re seeing tens of thousands of customers all with their own contracts, all with their special terms and conditions, and trying to manage that in a quick and efficient way—from executing that contract all the way through to renewal—is quite a challenge. You’ve got to make sure that everybody’s adhering to those contracts and all those terms and conditions. We’re doing quotes of 10,000 to 20,000 line items on one quote and contracts that are hundreds of pages long just in items and prices.
2. AI Will Enable Us to Contract at Scale
Anne: Where do you think contracting is going?
Ulrich: At PROS, we are managing those prices and creating those orders and quotes. Being able to produce a customer-item-specific price for every sales situation is humanly impossible. And that’s where AI comes in—to power that and do these things. As an example, just take 50,000 items that you can sell. That’s not even configurable, that’s just in your catalog with 20,000 customers, and you’re at 1 billion price points that could all be different depending on what type of customer there is and their particular selling situation.
Anne Baker: Yeah, there’s a been a lot of talk recently about where AI really is applicable and where are good-use cases for it, and certainly these very complicated pricing and quoting situations is where we’re seeing it really put into practice today. With the COVID-19 situation, all of a sudden a number of our customers had to search through thousands and thousands of contracts for force majeure clauses and information about getting out of trade shows or having to change terms on delivery timelines and things. So having AI be able to make those adjustments for you, on pricing or quotes or contracts, is really, really critical.
Ulrich von Beck: You have a good point about changes in contracts. Many of our customers are actually tied to indexes like the gold index or a raw-material index that are written into the contracts. So you see this cost volatility—prices are moving all over the place for raw commodities, and those prices can be adjusted for various customers.
3. Customers Are OK With Fluctuating Prices – As Long as They’re Fair
Anne Baker: What do you think people would be surprised to know about contracting?
Ulrich von Beck: Well, we did a survey across about 1,200 B2B buyers last year, and one of the most interesting facts that came out is 60 percent of buyers prefer a price generated by AI, and this sort of blew our minds. They’d rather just have it be there and not have a human to negotiate with. We thought it would be like 30 percent, but we tried to figure out what is driving that.
I think that with Uber or Lyft or Amazon, you’ve got all these real-time dynamic-pricing consumer environments that are making the buyer used to a fluctuating price. It would have been unheard of 10 years ago to charge between $20 and $80 for the same ride, but now you can, and if it’s raining, maybe you will pay $80 instead of $20. And we pay it because everybody’s getting that $80 price. I wait a little bit, usually down to $40 or $50, but you will pay a higher price and you don’t feel bad because everybody is getting that price. And in the B2B environment—as long as you’re not being singled out compared to your competitors—you feel okay about paying a fair price for the item or commodity or product that you’re buying.
Anne Baker: That’s kind of shocking to me, that statistic, but it makes sense because people are becoming more and more trained for self-service and getting as much as possible without having to talk to a human being—and perhaps we’re training them to want their pricing from AI, so that’s fascinating.
4. Understanding Human Psychology Helps Us Understand Contracting
Anne Baker: What is one contracting tip you wish every person knew?
Ulrich von Beck: Well, I have two contracting tips. One is a little bit tangential and it comes from the psychologist that was in the movie The Inventor, the Theranos story. His name is Dan Ariely, and he has a fantastic piece on choice. His example is with three items: If you put two of them very close together, it actually distracts the analyzer, or the customer, from the third one. So if you have a very close price differential between two, and one of those offers is miles better than the other one, people are attracted to that, and they will forget about the third option. I thought it was fascinating the way that human minds can be manipulated into a trade-off between two things that are close together rather than looking at all three objectively.
Anne Baker: I’d love to read more about that. It’s certainly an interesting tip to apply when you’re doing pricing, or negotiations around contracting terms, things like that.
Ulrich von Beck: Well, you can try it with your kids.
Anne Baker: I need to, believe me—I need some negotiation tips there for sure.
Ulrich von Beck: The second tip is certainly more self-serving, but also something that we can give back to the pricing community and the contracting community—an hour or so with our Chief Visionary Officer, Craig Zawada, who wrote the book The Price Advantage, widely used out in the industry. He has some great perspectives of what to do in the different pricing scenarios, especially now during COVID. Spending an hour with him and seeing his insight on e-commerce and how that is being accelerated right now is time well-spent. So I’d like to offer that to all the podcast listeners out there.
Interested in learning more about contracting and the configure-price-quote process? Register for our online event Accelerating Digital Sales with the Five Cs. Leaders from Microsoft, PROS, Icertis and Adobe will host roundtable discussions on how to accelerate digital sales with the 5 Cs: customer (CRM), configure (CPQ), contracts (CLM), close (e-signature) – and coffee!