Strategic Price Planning For The Manufacturing Industry
The pace of change in the market is unlike anything we’ve ever seen before. And while the manufacturing industry has seen a reasonably fast recovery, industry optimism has been checked by the fear of further disruption and risk.
Labor and raw material shortages, sanctions, major transport disruptions, demand outpacing supply, overreliance on low inventories, and hollowing out of domestic capability have all been pushing the price of production up. And the course of history is keeping us permanently on our toes.
After a decade helping manufacturers develop successful pricing strategies through technology and approaches that enable them to respond quickly and appropriately to change, at Pricefx we know that there are no two ways around it: agility is essential.
In this article, we’ll look at how manufacturers can code resilience into their pricing strategies and why they should be adopting a more granular approach to pricing in the year ahead.
Top 7 Components For Your Manufacturing Pricing Strategy
The past few years have presented a steady wave of disruptions to the status quo in the manufacturing industry. Here are our tips for reaching for growth and profitability in the year to come, even in a time of turbulence and volatility.
1. Adopt A Multi-Layered Supply Chain Approach
The seemingly unending disruptions to supply chains is adding to manufacturers’ complications and costs.
Manufacturing companies need to redesign supply chains to be able to adapt to whatever the world is going to throw at us next, and a flexible multitiered approach is necessary. Consider diversifying your suppliers, with a focus on reshoring to mitigate the impact of international supply chain disruption, and analyze cost challenges where conflicts with suppliers exist.
2. Meet Price Volatility with On-the-Pulse Agility
Watch for shortages and buy in advance to secure inventory at favorable prices so you can meet demand and costs as efficiently as possible. Detect the key products to target with specific price changes and leverage them to make the most of better times.
Ensure you have the digital maturity to enable dynamic pricing based on real-time raw material index inputs so you’re able to pass increases on to customers to protect margins as well as decreases to preserve relationships.
3. Gain Competitive Advantage Through Greater Efficiency
Manufacturing companies looking to capture growth and protect long-term profitability should invest in the digital capabilities that bring more connected, accurate, efficient, and predictive processes at every stage from the factory floor to pricing.
As you move your production processes toward a more digital future, pricing should not be an afterthought. Look for ways of trimming costs in production and work out the impact of your changes on your costs, speed of fulfilment, and price.
A great way to drive value in manufacturing is to understand what parts of the production line can be improved to create higher value options that can be set at higher prices with a lower cost of production.
72% of manufacturers that have embraced digital have improved business agility and speed-to-market as a result.
4. Move Confidently into New Channels
Recent years have seen customer purchase behavior move online. Manufacturers therefore need to start exploring digital channels to run alongside their existing ones.
By skipping steps in the value chain and taking a direct-to-customer focus, you can reach new customers, build relationships with end-customers, collect demand information (for forecasts), get immediate feedback, and gain more control over your brand and product image.
Customers will welcome your move online as buying direct from the manufacturer instills trust in the authenticity of your offering and your incentive to keep them happy.
98% of manufacturers are implementing an online sales channel (or are planning to) as part of their digital transformation strategy. If you’re one of them, ensure your pricing software is able to seamlessly integrate with your e-commerce solution so you can automate price updates quickly and accurately.
5. Take A Value-Based Approach to Pricing
Manufacturing companies need to move toward a customer-specific dynamic pricing strategy in order to capitalize on willingness to pay.
Value-based pricing in manufacturing may be more difficult to achieve than in other industries, so you’ll need the tools that help you drill down into your different costs to discover a unique pathway to profit.
A sophisticated pricing solution will help you maximize profits via segment-specific pricing that addresses differential willingness to pay.
6. Improve Pricing Processes To Increase Profitability
Empower your sales teams with the confidence to defend your prices during negotiations with guidelines, guardrails, and a 360° view of customer accounts. Improve quoting with strong CPQ capabilities and automated approvals and workflows to close more deals and increase sales.
Avoid handing out discounts and rebates hand over fist, and ensure those you do offer create attractive and profitable win-win scenarios. Warranty and rebate incentives will encourage customers to keep coming back to you and help you create mutually beneficial relationships.
Ensure you have the tools to support your sales team in gaining full visibility of customer accounts when agreeing terms, tracking thresholds, and requesting payouts.
7. Reject the Pricing Status Quo
Many manufactures overestimate what Excel can do. If you have just a few products or a rigid customer base, then it’ll suit you down to the ground. But it is not an analytics tool and cannot interpret rapid changes or set prices in real time.
An AI-based pricing solution like Pricefx will help you keep up with rapidly changing market conditions and execute price changes with lightning speed. The valuable insights will help you identify opportunities for profitability; mitigate risk and issues before they occur; determine better and worse-performing products, customers and regions; quickly identify and eliminate drags on profit margins, and make data-driven pricing decisions that give you the competitive edge for greater profitability.
What Your Pricing Strategy Should Look Like
When planning to upgrade your pricing plan, first define what success looks like for your business, the resources and capabilities you’ll need, and where internal versus external support can best fills the gaps.
Your pricing strategy should reflect your unique goals and the value you bring to your customers. But gone are the days that sweeping percentage-based price increases across entire product lines are good enough.
A more targeted and granular approach to your pricing is essential. You need a price management and optimization solution that offers granularity across all channels, geographies and customers for non-disruptive pricing that maximizes profitability. At its core, your pricing plan should propel you toward the kind of agility necessary to navigate a market that is in constant flux and throws the increasingly frequent curve ball.
Achieving Growth In A Volatile Manufacturing Industry
Nothing in the market stands still, so if any part of your pricing or processes aren’t keeping up with the ebbs, flows, upheavals, disasters, and opportunities of the market, then you’ll get left behind, spending more and more resources on a progressively complex maze of manual analyses, processes, and governance.
Manufacturing companies wanting to capture opportunities for growth and to protect long-term profitability need to ensure their strategies are centered around agility and granularity.
- build a multitiered supply chain
- secure inventory early at favorable prices
- consider D2C in order to cut costs, control branding and increase margins
- improve pricing processes to maximize profitability
- optimize production processes through greater efficiency
- empower sales team to close deals, increase sales and defend prices
- base decisions on comprehensive data
To learn more about how a Pricefx can support your move toward pricing excellence (and why we received a Stevie® Award in the 2021 US Business Awards® in the category of Manufacturing Solutions) and how pricing software can help you, you might also want to find out about what the implementation process is like or learn about the upfront costs in the article link below;