With input costs rising, hungry competitors circling, and concerns about soft customer demand leaving little room for mistakes, CFOs are struggling to maintain their company margins. A recent study from Accenture finds that CFOs are generally confident about their ability to impact the cost part of the margin equation. However, when it comes to the price part of the equation, many CFOs lack the analytical rigor to figure out how, when, or whether to increase prices.
The lack of effective analytical rigor may have something to do with the widespread uncertainty about pricing strategy. What companies have to do is really understand what people do or don’t value. That requires a very specific level of analytics and the ability to execute a sustainable plan. The following are brief descriptions of five ways manufacturing and distribution companies can increase profit through smarter pricing. The following discussion is provided by Cleveland-based B2B pricing experts PRICE FOR PROFIT.
By Chris Donnelly, PRICE FOR PROFIT
While most companies recognize the importance of pricing, few realize how much opportunity for improvement exists and the associated impact on profitability. Here are 5 ways you can leverage price to deliver bottom-line results.
1. Drive appropriate behaviors through policies.
Implement and enforce policies that best support the effectiveness of your manufacturing operations and encourage desired customer behavior. Minimum order value, emergency fees, and freight policies are often a significant opportunity to improve profitability with little market pushback.
2. Optimize price on low-volume products.
Low-volume, highly-differentiated products in your portfolio shouldn’t be ignored. These products are typically less price-sensitive and require a systematic process to test opportunities and improve margin.
3. Establish appropriate discrimination between sales channels.
Ensure you get appropriate price and service premiums when servicing each channel. For example, when shipping direct and bypassing distribution centers, be sure your freight and service business rules compensate you appropriately for the service you are providing.
4. Position product types differently to optimize profits.
Drive targeted demand by appropriately positioning the prices of new product vs. remanufactured product vs. kit offerings.
5. Monitor the economy to take actions.
Whenever inflation or deflation occurs, utilize the opportunity to execute price changes and increase margin. Arm your sales force with market data and trends to support your pricing efforts.
Make Pricing a Competitive Advantage
Pricing, like Lean manufacturing or other quality improvement initiatives, is a continuous improvement process and not a one-time initiative. Once you implement pricing strategies or actions, measure your results regularly, learn, adapt, and continue to leverage this powerful profit lever.
ABOUT PRICE FOR PROFIT, Strategic Pricing Consultants
PRICE FOR PROFIT delivers pricing expertise and guarantees increased profits for B2B manufacturers and distributors through active price management. Our advisors are a partner in profit growth, formulating customized, data-driven pricing models, improving internal processes and elevating internal pricing capabilities, because pricing is the most competitive profit lever a company has. For more information on how we can help you increase profit, contact Chris at cdonnelly@priceforprofit.com or visit www.priceforprofit.com
