Guided Selling for Business Sales in Telecoms: Why "Configure, Price, Quote" (CPQ) should be inverted to "Price, Configure, Quote” (PCQ)
CPQ is an abbreviation for “Configure, Price, Quote”. It is a common methodology in all industries where on-demand composite products are sold, such as cars; custom assembled computers and all mechanically engineered items.
All of these products are not sold as isolated disassembled items; they need to be put together to become the expected product that is demanded by the customer.
When it comes to CPQ for on-demand composite products, what this means is there is simply a need to “configure” the products – in the right combination - in order to get a price and a precondition that will eventually lead to the creation of a quote. CPQ was not an innovative strategy in this field; it just describes the only workable solution.
Now, CPQ has increasingly become a term used to describe strategies in telecom business sales for selling telecom tariffs, especially in the business segment. Some analysts - and of course many vendors - claim that the complexity of promotions and tariffs is an argument for implementing CPQ in telecom business sales as well.
I do agree in principle that CPQ is a good approach to understand the actual needs in telecom business sales, but I disagree with the conclusions of many authors out there as to why it is a good approach, and how the principle must be applied in the telecom business sales process.
Complexity? To some extent yes, but it is not "a beast"
Complexity in the world of telecom tariffs is clearly an issue, but it is important not to exaggerate this fact when considering implementing CPQ in telecom business sales: the manufacture of a car or an escalator for example exceeds this complexity by far.
The actual complexity of telecom business sales does not lie in the variety of tariffs and additional packages, but in the different variations of a basically identical service. A car manufacturer created variants, each representing physically different vehicles to fulfill different customer demands. In telecommunications; however, there is the same demand - for minutes and megabytes – and many different tariff variations, but in the end they give the same performance and (only) differ in price!
The very large number of possible tariff variations is not really caused by the combination of tariffs and additional packs but by the many opportunities to grant discounts: Discounts on charges, consumer prices, mobile phone subsidies, etc.
At this point one might interject correctly and point out that current product differentiation does indeed change the quality of the service, such as: bandwidth, minimum contract duration, service classes, etc; but the desire to achieve a relevant differentiation of product variety is more the desire of the provider (trying to find labels for upselling), than a real perception by customers! When comparing offers with different prices, such features in reality don’t play a big role, but are rather ignored by customers.
A more exciting topic is flat rates as inclusive minutes (or included volumes of data). Even if customers never take advantage of these additional allowances, they are perceived as providing a low cost advantage. With a wink, one could say: Finally some kind of discount can be provided that the seller does not have to pay for!
To summarize the facts: The flexibility provided by telecom business sales conditions results in millions of possible tariff variations. Add to that the fact that a business offer will typically include multiple SIM cards and the total number of possible variations for the entire company increases by several orders of magnitude.
"The right price" does not always provide the right margin
The large number of variants arises not because of the amount of classical product features that must be combined, but by the scope of potential price points for discounts. With a classical configuration - i.e. selecting product features, with an integrated control for compliance with business rules on the particular choice - you will not get far here. What is needed is not a product configurator, but a collective optimization of margin.
Ironically, in telecom business sales, the most common reservations to the optimization of tariffs come simply from the provider’s fear that optimizing (the price) will result in minimized margins. However, this is not true. Exactly the opposite is the case!
Different discounts can in fact have different effects on the margin. A discount on a roaming fee is reflected differently in the accounting books than an on-net service discount. As far as the customer is concerned, it does not matter where the discount comes from or how it is applied, as long the final discounted price is the same.
For the same offer price you can find many variations that have different margins! All variants are equivalent in terms of price for the customer. But from the provider’s perspective, the discount that is provided can make a huge difference.
By configuration alone it is not usually possible to find the "right price". The customer expects a price less than X. Optimization takes place and all variations are calculated that cost a price around amount X. That optimization process should actually find the ideal set of conditions which provide the maximum margin!
Optimization instead of configuration
CPQ means: Configure the product features, then determine the price for the selected configuration (and apply discounts). Once done, that information can be used to create an offer.
A consistent and workable application of CPQ for telecom business sales is best achieved by inverting this principle: By finding the price first, you will find the required configuration (i.e. the optimal combination of tariffs and discounts) as the second step!
"Configuration" is limited to defining customers’ needs (i.e., the desired amount of minutes and megabytes of bandwidth) and achieving the target price for the offer. Optimization will then determine the content of the quote.
"Guided selling" is without alternative for the SMB channel. But a simple transfer of CPQ logic from the world of product assembly to the sale of telecom tariffs products does not work particularly well in practice. It is far better to change the order to "PCQ - Price, Configure, Quote.” Find the price first, derive the “configuration” from that price, and eventually create the quote, and this also corresponds exactly with the approach of Offer-Ready!