Manufacturing Pricing: Performance Visibility & Forecasting

In the manufacturing industry, pricing strategies play a pivotal role in determining the success and profitability of businesses. However, traditional pricing methodologies often fall short in providing the agility and accuracy required to align with evolving market dynamics and business objectives. The era of manual guesswork and cumbersome spreadsheets in pricing is rapidly fading, giving way to a new era of data-driven pricing where manufacturing companies can benchmark themselves against others in the sectors, analyze customer and product KPIs with analytics and align prices quickly and effectively across regions.

With over a decade of experience in serving manufacturing clients, Pricefx has been at the forefront of implementing automated, real-time pricing processes configured to meet the unique needs of our customers. Our primary goal is not only to optimize existing pricing strategies but also to equip manufacturing businesses with the tools and insights needed to thrive in the future too. By harnessing the power of data-driven decisions and automation, our aim is to empower manufacturing companies and help them make pricing decisions informed by performance visibility and forecasting, thereby establishing a solid foundation for sustainable growth.

In this article, we will delve into 3 key ways in which manufacturing companies can leverage the enhancement of pricing visibility and improving forecasting accuracy to make better and more data-driven pricing decisions on route to swelling the organizational bottom line.

So, let’s dive in and get the pricing ball rolling!

1.  Compare the Company’s Pricing & Deal Performance Using Benchmark Data

When it comes to managing pricing and deal performance, manufacturing companies face the challenge of ensuring that their strategies align with industry benchmarks and standards. As a Pricing Manager, one of the primary objectives is to assess and compare pricing and deal performance against peers or benchmarks to identify areas for improvement. However, many companies lack the capability to effectively compare and analyze their pricing and deal performance, leading to missed opportunities for optimization. After all, manual pricing can be time-consuming and error-prone and ensuring that your list prices are always up to date and fully aligned with your pricing strategies (and also against what your industry competitors are doing) is a never-ending challenge.

The future opportunity lies in leveraging advanced tools to easily benchmark price and deal performance against industry peers. By automating the calculation of price and deal performance and providing access to pricing benchmarks, companies can efficiently compare their performance over time and against industry standards. This not only enables them to identify performance gaps but also opportunities to improve, ultimately increasing overall profitability.

For example, let’s consider a fictitious manufacturing company, that we will call “XYZ IronWorks Industrial Machinery” for the sake of the example, that specializes in producing industrial machinery. By using a modern pricing benchmarking tool like Pricefx Plasma for example, the Pricing Manager can access a wide range of anonymized transaction and quoting data from other competing companies in the same industrial machinery sector, segmented by region, product type, and other factors that XYZ IronWorks considers to be important to their company and its unique set of business goals.

 

This data is compiled into comprehensive pricing performance benchmarks, allowing the company to compare its pricing strategies and execution with market averages in the manufacturing sector.

 

Benchmarking tools like Pricefx Plasma offer a unique advantage by eliminating anecdotal evidence, generic benchmarks, and guesswork from the pricing evaluation process. What’s more with Pricefx Plasma specifically, Pricefx prioritizes data confidentiality and security, ensuring that customer data used in the Plasma system is anonymized and protected through double-blinding, preventing any unauthorized access to sensitive information.

 

Some important metrics that you can benchmark yourself against other manufacturers with Pricefx Plasma include:

 

• Deal Velocity
• Total Revenue
• Percentage of Accounts with Negative Margins
• Percentage of Products Required to Reach Revenue Targets
• Deals Outside Discount Guidelines
• And more….

 

To learn more in depth about Pricefx Plasma and the way it can be used to help your business (and its practical applications), check out the handy article below:

2.  Identifying Performance/Underperformance with Product & Customer KPIs

When it comes to measuring pricing success, it’s not just about the bottom line of profit and gross margin. While these are crucial aspects and important Key Performance Indicators (KPIs), they serve more as outcomes of efficient pricing rather than direct indicators of pricing success. Think of margin like getting an A in school – it’s a great achievement, but it doesn’t necessarily reflect your understanding of the subject matter. What truly matters in pricing is aligning your actions with strategic goals and driving improvements toward those objectives. Directional successes are often paramount, especially in times of change or when responding to shifting market forces.

Let’s jump into a practical example: imagine a manufacturing company aiming to increase its market share in specific product segments without compromising margin. The KPI objective is set at a 15% increase in sales units at the existing margin. Now, achieving only an 8% increase with no margin erosion should not be deemed a failure. Instead, it is better to think of it as a successful step toward reaching the overarching KPI goal, especially if the company has never achieved such growth before.

 

What matters most is accomplishing progress toward the set objectives.

When considering Key Performance Indicators (KPIs) in pricing strategies, it is essential to understand that one KPI goal is rarely sufficient. For instance, focusing solely on margin might overlook factors like competitiveness or market share. Additionally, KPIs should be tailored to different customer and product segments within the company. Just as various products play distinct roles in the product assortment, different pricing goals should be applied across customer and product segments to ensure comprehensive performance evaluation.

As a Pricing Manager, automatically detecting underperforming products or categories and taking corrective pricing actions is crucial. However, many   companies currently suffer from limited visibility into their underperformance reasons, making it challenging to achieve margin or other objectives. The larger the portfolio; the more unique pricing agreements, the less time an organization has to ensure each price getting sent out aligns with strategic goals and KPIs.

The future opportunity lies in gaining detailed insights into underperforming areas of the business, enabling prioritization and action on pricing  . Now with modern pricing software that includes automation and optimization, your entire product portfolio transforms into ‘low hanging fruit’ ripe for profit harvest. With real-time visibility into business results and outliers, along with customer and category-level insights, manufacturing companies can enhance margins through improved pricing programs over time.

To learn more about important pricing KPIs, check the following article to dive in deep for useful KPI information and how they can assist your manufacturing company become a visibility and forecasting champ:

3.  Proactive Product Price Updates and Price Setting

Neglecting to regularly update your price lists can result in significant costs for your manufacturing company. It is important to recognize that even minor improvements in pricing strategies can have a more profound impact on your profit margins than equivalent improvements in sales numbers. Instead of solely focusing on boosting sales, your business should also prioritize creating value through precise pricing methodologies.

Regular updates to your manufacturing company’s price lists are essential for reaching a broader audience, enhancing margins, and maximizing your bottom line. Maintaining a proactive approach is crucial when establishing or revising your List Prices, especially in response to significant changes such as the launch of a new product or alterations in the status of existing products, like changes in cost, competitor prices, or the identification of products with low margin performance.

Ensuring proactive notification of any changes to existing products is crucial, facilitating the prompt recalculation of prices aligned with your pricing strategy and enabling seamless integration back into your ERP system. Don’t wait for a specific date to start pricing actions, have the system tell you when a problem arises, respond in real time with automatic approvals and focus your efforts are the real issues.

This proactive approach minimizes the delay between a product becoming sellable and its corresponding price being available, allowing for swift reactions and recalculations of List Prices in response to price-relevant changes. By adopting this approach, you can significantly reduce the risk of manual errors, streamline processes, and implement dynamic pricing   effectively to ensure you stay relevant in the marketplace.

The benefits of implementing such a system are manifold. Not only does it eliminate the time lag between product availability and pricing information, but it also empowers your business to respond swiftly to market fluctuations and competitor actions. Moreover, by automating price recalculations based on price-relevant changes, you can mitigate the risk of manual failures, ensuring accuracy and consistency in your pricing strategies. Ultimately, this dynamic approach to pricing enables your manufacturing company to stay agile, competitive, profitable and a better partner for your customers in today’s fast-  market environment.

What’s more, utilizing the Price List Impact Simulation feature enables your   to evaluate the prospective business repercussions of price list modifications in advance, encompassing all facets of the price waterfall in your simulation and aligning them with your business objectives. This means spending more time planning for possible market shifts and less time dealing with day-to-day tactical pricing decisions.  Market shifts are not as stressful if you already have a move planned and vetted internally.

For additional insights, watch the informative video provided below:

Mini-Case Study: Let’s delve into a hypothetical scenario involving a burgeoning manufacturing firm specializing in electronic devices. As this company diversifies its product offerings and ventures into new markets, the manual recalibration of list prices becomes increasingly cumbersome, prone to errors, and time intensive. Recognizing this challenge, the company opts to integrate pricing automation software into its operations. This strategic move enables the company to seamlessly adjust list prices in response to significant changes such as the introduction of a new product or shifts in the status of existing products, including variations in production costs, competitive pricing, and market demand. By embracing pricing automation, the company streamlines its pricing processes, ensuring agility and accuracy in adapting to evolving market dynamics as it continues to expand its business footprint.

Moreover, the incorporation of price list impact simulation further augments the company’s pricing strategy. This advanced feature empowers the company to forecast and evaluate the potential consequences of revising list prices, providing valuable insights that inform the most effective pricing strategy to propel the company’s growth trajectory. With the ability to anticipate and navigate market fluctuations proactively, the company is well positioned to optimize its pricing approach and drive sustained success in an ever-evolving business landscape.

To learn more about the benefits of proactive price list management, check out the handy article below:

Data-Driven Performance Visibility & Forecasting or Die Trying

As we have discovered above, as traditionally used pricing methodologies have been proven to fall short in adapting to evolving market dynamics, manufacturing companies are increasingly turning to data-driven pricing solutions to enhance visibility and forecasting accuracy. The time when manufacturers could spend a quarter planning their once-a-year price update is gone.  The last few years have shown that dynamic pricing is a must for any company to remain competitive and relevant in the marketplace.

By leveraging the advanced capabilities of a quality pricing software solution like Pricefx and others, manufacturing companies can benchmark themselves against industry peers, analyze customer and product KPIs with precision, and align prices effectively across regions. Regular updates to price lists are crucial, particularly in response to significant changes like the launch of a new product or shifts in production costs. Proactive   systems ensure swift recalculations aligned with pricing strategies, minimizing delays, and reducing the risk of manual errors. Additionally, Price List Impact Simulation enables companies to evaluate potential business repercussions of price list modifications in advance, empowering them to make informed decisions aligned with their business objectives.

To delve deeper into why updating your price lists on time is so important and how to avoid the horror stories of not updating your price lists in a timely fashion, check out the useful article below:

Meanwhile, Happy Pricing!