Last year witnessed an unprecedented price rise for all commodities. From lumber to metals, commodities across the board rallied on rising demand, leading to rising inflation globally.
As we step into the new year, companies and economists are bracing for the inflationary trends to continue this year, driven by strong consumer demand, supply chain disruptions and the spread of the omicron variant.
The Challenge for B2B Pricing
As inflation rises, industrial companies must take a re-look at their pricing process.
While most companies have passed on the price increases to their customers, there is a noticeable difference in how consumer facing companies, with a predominantly B2C pricing model, have passed on this price increase, compared to their B2B counterparts.
Consumer Packaged Goods companies have taken a brand centric approach to deal with this challenge. CPGs companies with strong brands have been more direct in passing on price increases to end consumers, while others have taken indirect approach to increasing their price; from reducing package quantity (grammage), to doing away with discounting practices like trade promotions and couponing.
When it comes to industrial companies who operate purely in a B2B model, it’s one thing to announce a list price increase, but another to actually pass it on to customers.
While many industrial companies announced price hikes last year, most of it was price recovery to account for additional discounts and favorable terms passed on customers in 2020.
Prolonged inflation, like the one we are witnessing now, has not be experienced since 1970’s. While chronic inflation might not occur, continued inflation has instilled a sense of urgency in companies to act on price increases, to avoid further margin erosion.
Pricing Moves for B2B Pricing Leaders
For business leaders and companies that respond strategically, input-cost increases can be an opportunity to restructure pricing. Communicating a price increase to customer, especially during times of supply disruptions and longer and usual lead times, can be difficult, but with a well-planned, strongly executed approach, manufacturers and distributors can effectively pass on input-driven cost increases without jeopardizing market share or customer relationships.
Here are three pricing moves that B2B pricing leaders, especially those in the manufacturing sector, can take to navigate price increases across their customer base:
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Take A Surgical Approach To Price Increase:
Instead of blanket pricing moves, use a more nuanced and data driven approach to price increases. Segment your customers based on not just volumes and margin, but also cost to serve, historical performance and other attributes.
Segmentation analysis can help the business prioritize where the need for customer pricing changes is high and the risk of attrition low.
The goal is to size the opportunity and identify customers the business can and can’t afford to lose.
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Take a Data Driven Tiered Approach To Discounting:
Discounting is inevitable in large B2B deals. However, most companies approach discounting on a deal-by-deal basis, rather than approaching it in a more structured and consistent manner.
Companies can leverage historical sales and deals data, along with market inputs, to identify their most valuable customers and most differentiated products.
Segmentation can help identify high value customers, to whom higher discounts can be offered, while lower discounts can be passed on to low value, low margin customers. Similarly, market data can help identify differentiated product offerings. Highly differentiated products can be offered at lower discounts.
The goal is to have a consistent, well defined and data driven approach to offering discounts on B2B deals.
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Empower Your Sales Force With The Right Tools:
Most sales reps will avoid uncomfortable pricing conversations with customers if they can. Sales reps can feel more confident going into this conversation, if they have access to the right data at the right time.
With the right set of tools, that can serve up real-time pricing guidance based on customers transaction details like past deal performance, product segments, historical transactions, and so on, sales reps can be equipped with more granular insights
This data driven insight can help sales reps provide customers and distributors with a detailed, accurate and data driven rationale for price increases.
Time to Act is Now
Companies often fail to consider how long it will take for them to raise prices in response to cost inflation.
Although manufacturers feel the negative effects of raw-material cost increases almost immediately, it often takes several months for the organization to even consider action. Once it does, changes can take months or even quarters to have a meaningful margin benefit.
In times like these, its important for organization to be nimble, agile and proactive, rather than reactive to price changes.
Although simple spreadsheets have sufficed to serve pricing needs, they tend to slow down any enterprise wide price change many companies and by design lack consistency.
Many organizations are now digitizing their pricing processes by upgrading to Pricing Tools to drive consistency in pricing across geographies, channels, and customer base. These tools often come equipped artificial intelligence–driven deal quoting to empower the sales team with real time pricing guidance.
Pricing leaders have been quick to adapt to advanced customized pricing tools, customized to their unique pricing needs, that leverage data, from both internal and external sources, to quickly scout and quantify pricing opportunities, and identifying areas where organizations can be most aggressive with their pricing while minimizing risk.
Equipped with the right pricing tool, your pricing teams can feel more confident in making price changes that are right for your business and in line with market realities.
About Vistaar
For more than 20 years, Vistaar has been the trusted Digital Pricing Transformation partner for some of the biggest, most recognizable names in global business.
Vistaar works collaboratively with companies across industries to help them identify and implement the right set of pricing tools.
Get in touch to know how Vistaar can help you transform your pricing process.
