Business modeling to simulation is often viewed as an approach that is limited solely to “academic” analysis with little real-world usefulness. The potential of modeling to simulation in business, however, can extend well into actual daily use across an enterprise with powerful results.
A Real-World Problem
An international firm was introducing a new turnkey subscription-based training program that included hardware, software, and educational content. The program involved certain one-time fees and ongoing subscriptions with price adjustment based on quantity, type, and term of the contract.
The product would be sold by the independent sales teams across three separate businesses and around the World. Project executives mandated that sales personnel must provide a preliminary quotation to the customer in the field that was reliably consistent across all sales representatives and would ensure an acceptable profit.
The broad executive mandate for a turnkey subscription pricing approach was used to create a document that developed and clearly stated the required detail for the underlying pricing principles. During weeks of refinement, the pricing principles document was adopted and approved for implementation by the project executives.
Given the complexity of the pricing principles, an Excel workbook was created with formulae and logic that modeled the program pricing principles.
Over weeks of iteration and refinement, various safeguards were programmed into the Excel workbook to ensure that sales representatives could not inadvertently enter information that fell outside of program guidelines.
The Excel workbook generated a simple income statement to ensure that acceptable profit was generated over all allowable inputs. Trial quotes generated by the Excel workbook were reviewed by sales management and program executives who approved the model.
The Excel workbook was refined to generate a formatted price estimate sheet that moved the sales process forward to a formal quotation and master services agreement, and released as the sole in-field pricing tool used by US sales teams.
As the program matured the pricing tool was updated a to generate different types of estimates, including extensions to service during the term of coverage, and renewal at the end of the initial term.
An international version of the US pricing tool was developed and enabled customization by marketing and sales management in the local markets, including local currency, list price, landed costs, acceptable discounts and local language.