Not to fear, enterprise-class pricing software is here
With the latest round of tariffs going into effect from 23rd August 2018, many companies are turning to their finance and pricing teams to provide a strategic response that maintains profitability without disrupting demand. To help navigate the complexities of tariffs, Vistaar has put together a four-step guide that allows finance and pricing teams to be nimble, assess the ever-changing pricing landscape, and empower leadership to quickly develop an optimal pricing response consistent with existing pricing strategy.
Step 1: Get the complete picture
First, get the complete picture as accurately as possible. Pricing practitioners must calculate the cost impact of the tariff, by product, across the complete product portfolio. This may include working with procurement to understand their purchasing and hedging strategies. Next, the cost impact by customer should be calculated, so that margin impact is known for each customer. Finally, it is critical also to consider the cost impact at a market level, so the big picture impact is also visible.
You are now ready to answer difficult questions such as – how does this proposed price change impact both the immediate and longer-term financial goals? Pricing technology can provide pricing practitioners and leadership the ability to easily consider the impact of proposed price changes and its effects on revenue and margin. It is a daunting task to iterate through pricing alternatives using excel spreadsheets. Enterprise-class pricing software enables users to focus their time on finding a desirable outcome, rather than combing through data and trapping errors.
Step 2: Don’t throw out the strategy
Pricing teams must go beyond aggregate data and formulaic calculation to achieve the most effective tariff price response. Batch price updates can leverage business rules that reflect your pricing strategy. Also, pre-existing terms in customer agreements such as price caps, collars, not-to-exceed guardrails, linkage to market indexes, and many other terms, must be respected when prices changes are performed.
Manually updating each customer for a price change is not just enormously time-consuming but increases the likelihood of creating price changes that do not align with your pricing strategy. Without enterprise-class pricing software, companies revert to “peanut-butter spread” price changes which means all/most customers get the same price change. Enterprise-class pricing software allows users to easily consider and execute nuanced price changes while using existing pricing strategy as a guidepost.
Step 3: Know Before You Go
Before implementing price changes to mitigate the tariff impact, it is imperative to understand how the changes will impact profitability. Pricing teams and leadership need to review various price strategy response scenarios, and their impact on volume, revenue, and margin to finalize their response to the tariff. Manipulating multiple spreadsheets to calculate potential price impact outcomes is not only frustrating but increases the risk of missing the mark.
Modern pricing software easily simulates the volume, margin and/or revenue impact of any potential price change so that pricing managers and leadership can make data-driven decisions based on expected impact, as opposed to hoping for desired outcomes.
Step 4: Hit the road
After the best price change approach is selected, it is time to implement the price changes. This stage is where “the rubber meets the road,” and the price changes are communicated and published. The administrative steps to roll out changes can consume many labor hours and result in market latency and potential data input errors.
Enterprise-class pricing software reduces labor hours by automating updates for price lists, quoting parameters, and customer agreements while respecting existing terms and conditions. Finally, integration to ERP and other relevant systems ensures that price changes are immediate and accurate.
On the bright side
Vistaar encourages pricing teams to view tariffs as an opportunity rather than a burden to the business. Tariffs offer a chance to reevaluate your pricing strategy, open internal lines of communication, and reconnect with your customers. Pricing and finance teams can utilize this four-step guide in conjunction with enterprise-class pricing software to successfully get through this pricing challenge and be prepared for the next.
Only with SmartQuote, can pricing teams analyze the potential impact of tariffs and efficiently create a price strategy response with just a few clicks. Find out more on SmartQuote here.