23 Nov Three crucial areas of a SKU rationalization strategy
by Kevin Willemse
Sales reps spend over a third of their time on administrative and miscellaneous tasks—in other words, 35 percent of their time not selling. There are many reasons why that number seems unexpectedly high, but common reasons trace back to SKU proliferation—unwieldy product catalogs, corrupted price books, and associated pricing difficulties dragging down quoting velocity.
SKU proliferation stems from creating multiple product records for various product combinations you offer (even though they are the same product, merely sold under different scenarios) that it becomes nearly impossible to navigate or maintain them effectively. To remedy this, effective product catalog diligence demands SKU rationalization measures—an ongoing process meant to tame your product and pricing book to support a more effective selling experience. But to support rationalization, you need the right IT infrastructure and governance models behind you.
Getting SKU proliferation under control
A well-executed implementation of Salesforce CRM Sales Cloud is a good start to that kind of streamlining—especially in less complex organizations with manageable catalogs and relatively simple selling motions—but it may not provide the tools and features you need to fully model and maintain your SKUs within a larger, more complex product catalog and sales environment. This is where your organization would benefit from Salesforce CPQ and its dynamic configuration features to realize and unlock value from true SKU rationalization. This moves you beyond capturing the rudimentary interactions of accounts, contacts, opportunities, and products during the sales cycle, and provides automation and intuitive logic while navigating a well-structured product catalog and price book, to drive faster, more successful selling experiences; this simply cannot be done effectively under circumstances where SKU proliferation has taken hold.
Still not sure what SKU rationalization is, or if you’re even experiencing it? Need to strengthen your approach to product proliferation and introduce more structure? These are common concerns, and the best way to tackle them is to investigate and develop a strategy to include SKU rationalization as part of a complete quote-to-cash business framework. Let’s examine three crucial areas to grapple with as part of a complete SKU rationalization strategy: Scoping, Designing, and Knowing your limits.
Scoping your SKU rationalization strategy
The scope of your SKU rationalization strategy needs to be thorough—something you can rely on to enable and deliver a true reflection of how your offerings are sold while remaining as simple as possible.
First, start with where you are now: how many catalogs exist, and how are they maintained? Are there duplicated catalog entries of the exact same product that exist only to cater for price assignment or specific sales scenarios? How many currencies are used? Do your IT tools and processes support a more sophisticated SKU classification model and structure? Are there umbrella categories or parent and child relationships between products that have transactional dependencies? And perhaps the toughest one of all; are your product offerings and their selling permutations simply too broad and accommodating?
These are critical to the scope of SKU rationalization, form a foundation for sales optimization, and deliver significant gains such as doubled deal sizes and 28 percent shorter sales cycles. But your scope doesn’t end here. There are other considerations to include to make sure your strategy is pristine:
- Deep analysis of the existing state of the catalog cleanliness (from “needs improvement” to “complete overhaul”)
- Diversity of product lines/reasons to consider catalog/price book splits
- Source, frequency, and ownership of product catalog changes (additions, substitutions, retiring, selling variations)
- Governance and product management processes and policies around product catalog entries and maintenance
- Understand all the connected data, systems, and processes which connect to the existing catalog and how any changes to it may impact these in any way
- Education around how product catalog may fit into the CPQ model
- Researching how CPQ leverages a smaller, well-structured catalog to cater to multiple selling scenarios
- Appreciating how CPQ depends on and enforces the rationalized catalog
- Recognizing CPQ features most valuable to your selling cycle
- Considering other common sales velocity hindrances that CPQ may address as part of a rationalization and implementation initiative (pricing, quoting, approvals)
Check out how we completely restructured Gainsight’s product pricing and packaging as part of a CPQ implementation and brought peace to SKU rationalization at the company.
Design for governing and for growing
To make your SKU rationalization process dependable and scalable, it has to account for the users adopting it and your company’s growth trajectory. In other words, you need to design SKU rationalization parameters for both governance and for growth. On the governance front, this includes developing a catalog governance model products that will protect not only the existing data but extend into the product development and go-to-market cycles, and then facilitate downstream processes to allow changes (only when approved by the necessary stakeholders and refined to support the CPQ quote-to-cash optimizations). You’ll also want to design user-friendly training and adoption resources around the newly rationalized product catalog, demonstrating its value and rationale.
As far as designing for growth, you need to define your catalog structure so that it suits your existing offers and configurations and caters to plans for potential new product introductions. In addition, you’ll have to incorporate all related automation, data dependencies, integrated systems, etc., that utilize the existing catalog and prepare for redirecting to the newly rationalized one. CPQ can alleviate the pain of migration and data repair here by providing frameworks for intuitive product structures that account for multiple layers of potential complexity, including product relationships, volume/term influences, and subscription/renewal models.
One interesting example of innovative and flexible—but controlled— SKU management within CPQ can be found at Centrify, where Simplus implemented CPQ in a way that allowed for automated SKU generation based on rep selection; while on the surface this sounds like a catalog maintenance nightmare, configuring this flexibility (which was necessary as part of their selling model) to work within the product catalog structures delivered a superior experience, cleaner catalog, and allowed for rapid and agile deal execution. Before this, Centrify’s Senior Sales Operations Manager claimed they were “forcing our reps to make decisions based on this long list of SKUs… you know, people are people—we make mistakes. A sales rep would accidentally click a two-year instead of a three-year subscription, or a standard service level instead of a premium service level. It was really just becoming a problem on the back end.” With a product overhaul and Simplus’ help, Centrify now enjoys increased sales productivity, improved customer relationships, and a streamlined quoting process.
Understand the limits of SKU rationalization strategy
Finally, it’s important to understand that while SKU rationalization is a crucial sales optimization tactic for firms of any size, there are limits. Not all complex or unique product scenarios can be solved for—even with a perfect SKU rationalization methodology and approach. For this reason, it’s a good idea to make sure you’re not trying so hard to force a state of rationalization that, when placed in the reality of your market and selling situations, makes your catalog ineffective in practice. Remember, rationalization should never occur in a vacuum, and it is often an ongoing process and repeat effort.
Additionally, SKU rationalization may not be the answer for short-term product simplification goals. If a SKU rationalization project is too much for the budget and resources you currently have, consider going for a simpler product cleanse, removing obvious errors or duplicates, and leveraging CPQ features such as filtering and guided selling as perhaps a short-term but effective approach. All of this will still make the sales cycle and product catalog navigation easier for your reps, and you can save “formal” rationalization initiatives for when the organization is ready.
As your business grows and expands into new markets and offerings, so too will your product catalog. To make sure all that growth doesn’t come back to bite you with a slow, frustrating, or otherwise compromised sales cycle, make sure your company has a strong approach for SKU rationalization in place and apply the appropriate scoping, design, and understanding of its limits and impacts.
If you’d like to learn more about streamlining quote-to-cash processes, including out of control product books and unruly pricing models, reach out to our team of experts and discover how you can get started.
Kevin is a Director in Simplus’ Strategic Advisory Practice, focused on bringing valuable transformation to customers looking to maximize their investment in Salesforce.com alongside their integrated systems and business processes.