With a somewhat bleak global economic outlook for next year, the manufacturing industry, still reeling from the devastation caused by the pandemic, must now brace itself for yet more uncertainty.
With across-the-board inflation impacting customer spending, ongoing disrupted supply chains, raw-material and labor cost increases, omnichannel pressures, and hard-negotiating distributors, having some idea of what to expect in the year ahead will be imperative to getting your 2023 strategy right.
At Pricefx, we’ve been supporting manufacturers in defining and optimizing their pricing strategies for over a decade, and in this article, we judge the manufacturing industry trends and predictions we made ahead of 2022 and lay out our forecast for the year ahead.
So, let’s dive in.
How Did Our 2022 Manufacturing Trends And Predictions Fare?
Our key advice to manufacturers for 2022 was to adopt a granulized methodology to optimizing prices that enabled them to be adroit and ready to adapt quickly. We urged them to keep a keen eye metrics like cost trends, sales histories, raw material availability, floor space maximization, downtime minimization, warranty optimization, and lead time reduction.
So, now, as we enter 2023, we can affirm that we agree with our assessment of where manufacturers should have placed their focus during 2022. However, there were some things we didn’t see coming.
What Manufacturing Trends Surprised Us in 2022?
There were a couple of things we weren’t expecting to see last year.
Firstly, the investment manufacturers made in transforming their digital customer experiences. Whether serving the B2B market or following the trend of adopting a D2C model, manufacturers woke up in 2022 to the fact that their customers have expectations, and not meeting them has consequences they simply can’t afford. Their customer needs to understand how the offering fits their needs and manufacturers are now providing knowledge centers as well as enabling online product configuration capabilities, part number searches, and chat bot functionality.
Secondly, we were surprised by how quickly the Great Resignation fizzled out. This time two years ago, the rate of job quitting in the United States reached highs not previously recorded, and 43 million Americans leavingtheir jobs in 2021 alone. And while the manufacturing industry took the largest hit, the degree of disruption depended on what manufacturers were selling. Those producing non-essential goods, saw a significant reduction in staff, while those selling essential goods actually had to scale up their production, product lines, and workforce. According to the Job Openings and Labor Turnover report, the Great Resignation started to lose steam in September this year.
So, as we look forward to 2023, what do we predict for the manufacturing industry?
Top 5 Predictions And Trends For Manufacturers In 2023
Without wanting to be a Debbie Downer… we don’t think much will change in terms of the outlook for 2023. Uncertainty, increasing prices, and supply chain issues will continue to be the name of the game. After a faster-than-expected rebound from a devastating pandemic, and now facing the higher cost of living, worldwide political strife, ongoing supply disruptions, and a recession on the horizon… manufacturers have a lot of uncertainty to deal with and are likely to want to play it extra safe going forward.
So let’s explore our top five trends in the manufacturing industry and predictions for dealing with this in the year ahead:
1. A Need For Greater Visibility
Uncertainty means you can’t effectively plan for the year ahead; what you learned last year may not be relevant next year. We’ve said it before and we’ll say it again: in times like this, manufacturers need to be paying even closer attention to their key metrics. And this requires visibility.
Visibility is about having the data to help you effectively reduce your exposure. It’s about getting a clear view of everything that goes into making your product and which strands can have a potential impact on your price-setting strategy, (like labor, freight, raw materials, formula contracts, relationships with vendors).
Only with crystal clear visibility, are you able to identify areas of risk.
For instance, if one of your raw materials comes from a single source that has been increasing costs 5 % every year, is it time to find another source? Or to negotiate a better deal? Could a 10-year contract help protect you from volatile price changes? Do you diversify suppliers? Which of your products would be impacted by sanctions, cost increases, supply chain blockages, tariffs…? What happens if your 30-day lead time becomes a 45-day lead time or even a 75-day lead time? What can you do to offset these things in the form of price adjustments?
Without the visibility that gives you get a clear picture of every element of your process, you’re not able to plan for how you’re going to address issues when they arise. By calculating, understanding, and acting on changes in costs, wages, supply chain, market demand, lead time, etc., you can prevent losses, maximize profit, and fulfill orders quickly and efficiently.
One of the best ways to create the visibility needed is to connect the different functions that impact the profitability of the business, ask yourself if your revenue management team knows and is intimately familiar with the strategies and challenges of the sourcing or procurement team? More often than not these functions work in siloes that go beyond the systems they use, creating these bridges will open up potential to better manage uncertainty.
2. A More Consumer-Centric D2C Approach
The direct-to-consumer model in the manufacturing industry picked up speed in 2022 and we believe this trend is going to accelerate.
A Faster Time to Market: Manufacturers are able to rapidly prototype, test, and push products to the market, which gives them a competitive advantage.
A Better Understanding of The Consumer: By creating a direct channel of communication with their consumers, manufacturers gain valuable insights for improving their products and services.
More Control Over Brand and Reputation: By selling D2C, manufacturers can avoid brand dilution or misrepresentation by third-parties and gain full control over how interest in their products is generated and how the shopping experience is crafted.
More Control Over Price: By selling to the customer via their own channels, not only can manufacturers better control the price of their offering—achieving the full manufacturer suggested retail price (MSRP) rather than wholesale prices—but they put themselves in a good position to control how the distributors theydo deal with sell. This is especially important for brand manufacturers (think: Apple iPhone).
The wine industry is a good example of successful adoption of the D2C model. Wine manufacturers are setting up their own channels to sell their products and are becoming less dependent on distributors. Some are only selling their medium products through distributors; keeping their premium offerings to sell through their own channels, which allows them to have better control of the price and to gain better visibility into how much customers are buying.
How might this D2C success apply to a car manufacturer? Let’s keep in mind that D2C is not necessarily the person on the street, it can be a corporation or another company using the final product, in the aerospace industry an example of this is companies like Honeywell offering extended warranties to their products that go on the big Airbus A350 and the customer is the airline operating that aircraft.
With so many advantages, we expect to see more and more manufacturers moving to the D2C model and we believe 2023 will be about them making it even easier for customers to buy directly from them. It will no longer suffice to simply provide a customer portal for orders, because customers will have the same expectations of manufacturers as they have of major retailers (an omnichannel presence, smooth customer journey, personalized experience, etc.). So manufacturers will have to work out what services they are going to provide, which channels they will communicate through, and how they’ll craft a winning customer experience.
3. Getting Better At Omnichannel Pricing:
On the subject of D2C and omnichannel selling, we expect to see more manufacturers getting smarter about their omnichannel pricing strategies.
At present, not many manufacturers are capitalizing on the ability to have different price points based on where they’re selling, whether directly to the customer or indirectly through distributors or dealers. But it would be smart, especially if you’re going to be moving toward D2C and/or indexing on your premium products, to start thinking more strategically about omnichannel pricing.
Take our wine industry example from above. What usually happens is that the distributors are the ones that make most of the money and have most of the power. They can blacklist a wine manufacturer for not playing nice. But if the wine manufacturer starts selling their premium product only via their D2C channels, and starts to regain control over their brand and position in the market, then they put themselves in a stronger position to negotiate with distributors. The deal might be that the distributor gets to sell the entire range, but that, while the cheaper products can be sold at a price that earns a higher profit potential, they must always respect the price of the premium product. A wine-wine result 😉
4. Beware The Dangers of Social Media
While we’re talking about having an omnichannel presence, we expect to see social media become more of a disruptor in the relationship between consumers and brand manufacturers in the year ahead.
Social media has been both a blessing and a curse to businesses of all kinds. It is the best way to reach customers where they are and helps companies attract new customers, get feedback, and nurture loyalty. However, social media platforms have quickly become the public square of the 21st Century. The danger for businesses is that it is now a place where your customers want you to favor their position or they’ll boycott you.
Let’s take the obvious example: Twitter. Since Elon Musk’s takeover of the platform on October 27, 2022, there has been much controversy. It very quickly became the worst place to be seen for advertisers. Truth be told, advertising on Twitter is a nice-to-have for advertisers, not a necessity. But it provides about 90 percent of Twitter’s revenue.
Since the takeover, the NAACP, the historic African American advocacy group has called on advertisers to leave Twitter in response to the reopening of Trump’s account, the world’s largest media buying agency, GroupM, told its clients that Twitter is a high-risk media buy and one of the world’s largest advertising companies, IPG, issued a recommendation for clients to temporarily pause their spending on Twitter. Advertisers like Balenciaga, Volkswagen, General Motors, Audi, Pfizer, General Mills, and other major brands have all removed their advertising from the platform.
To shake things up further, not only did users boycott the platform directly (with 875,000 accounts being deactivated in the first week of the takeover), but customers of brands that were still advertising on Twitter said they’d stop buying from them. In fact, things got even rockier when, due to the right-wing bias associated with Musk, companies were branded either right-wing or left-wing based on whether or not they were still advertising on the platform. Customers would then boycott those brands based on this assumed political bias.
Why is this one of our top things to look out for in manufacturing for 2023? Well, if you’re one of the many manufacturers looking to take a more D2C approach, then you have to understand that you might be wandering into unfamiliar and potentially risky territory. Most manufacturers simply don’t have the experience in the field to know how to safely navigate such rocky terrain.
5. Increased Focus on Sustainability
The power of the customer continues in our last prediction for 2023: we expect to see even more manufacturers leaning into sustainability. With climate change on everyone’s mind, and the effects of it now impacting our daily lives, consumers would rather pay that little bit extra for a sustainability stamp. Yes, even in the face of inflation, soaring energy costs, and a higher cost of living.
The demand for sustainable products, processes, and packaging is growing. Customers get less of a thrill from a $5 T-shirt than they do the knowledge that their $10 T-shirt was not manufactured in sweatshop in China. This, in itself, is a self-sustaining trend: companies can feel better about charging higher prices for their products because customers are happy to pay them, which enable companies to be more sustainable, which makes customers even happier…
But there is another reason we can see sustainability growing as a trend in 2023, and that’s because it reduces risk. In times of uncertainty, if you know where your raw materials are coming from and how your manufacturing processes are happening, you’re not as exposed.
Say one of your materials comes from the Amazon Rainforest. By switching to an alternative that comes from a more local and easily renewable source, you’re reducing your risk should a ban on deforestation come into force. The switch not only enables you to stamp your product with the eco symbol, but you’re protecting yourself from major disruption.
Sustainability brings many benefits, including growing customer trust, improving efficiency by reducing waste, and investing in long-term business viability. So we expect it to be as much a strategy as it is a trend in the year ahead.
2023: A Year Of Uncertainty and Opportunity for Manufacturers
Manufacturers have a lot to consider in 2023. On the one hand, they’re facing higher raw material costs and ongoing disruptions to the supply chain. On the other, they’re in the midst of the great manufacturer D2C opportunity. Not only can they now take their offering directly to the customer and gain better control over their brand and prices, but they’re able to leverage the power of omnichannel pricing too. However, the path to D2C success is strewn with hazards and they will have to be ready to face the music in the social media public square.
In times of uncertainty, it’s essential that manufacturers have excellent visibility of every element of their product, processes, and prices. They need make the most of the D2C movement; to make their products easier for the digital customer to find, and to refine their omnichannel pricing strategies. They should also be leaning into sustainability to meet customer demand and ensure long-term business viability.
Learn more about how you can get prepared to face an uncertain year ahead, with the great article below on the ways pricing software can assist your business to profit during recessionary times:
Jose Paez is a Solution Strategist at Pricefx with 14 years of experience as a pricing practitioner. In his career, he has led in every aspect of pricing from analysis and optimization to pricing strategy definition and execution. His experience in driving and implementing initiatives in digital transformation has given him insight into the typical roadblocks organizations face and the best paths to release the untapped potential of pricing organizations.