B2B INDUSTRIAL PRICING

 B2B Industrial Pricing is one of the last frontiers for sophisticated pricing management. Revenue optimisation has given way to volume optimisation, to allow factories running at full capacity and thus optimise output and lower fixed costs per unit. Since fixed costs often comprise the largest proportion of expense in a manufacturing operation, the logic flows that the most profitable decision is to hold market share and keep prices down moving with the market

What ends up happening is that prices can be shifted down too quickly, producing flow on effects to your competitors and the entire market's profit

VOLUME OPTIMISATION

Volume optimisation strategy is only effective in pure economics terms because the market place equilibrium will ensure that demand and supply always intersect with the pricing mechanism. However, the macro economic forces that drive the supply and demand pricing do not ensure that perfect pricing decisions are made and revenues optimized "given the market conditions". What happens is that prices can be shifted down too quickly by just that one percent too much. That one percent has a flow on effect to your competitors and thus a single quick decision can bring an entire market's profit down by millions of dollars of EBIT

Supplier's cannot collude with one another, this is cartel behaviour and destructive to the ultimate economic goal of society -to ensure the best utilization of assets. Signalling intention to compete responsibly is not illegal. Signaling is critical and happens almost daily across markets in every industry. Every industry has a maverick pricer. A company that seems intent on gaining volume and market share with out care for profit

There are many examples whereby low level pricing decisions made by a new or junior account manager looking to make their mark in the company get interpreted by competitors as out of control pricing.  This is example is often a catalyst for a price war. The price war will nearly always start when excess capacity meets slackening demand. No producer wishes to give up volume and or market share

How do you manage these seemingly impossible market conditions to ensure profit growth sales to budget / forecast and not worry about losing your job?


RE-GAINING FULL CONTROL OF PRICING STRATEGY

The answer is to ensure full control of your pricing strategy by: 

- Having clearly defined roles and responsibilities for the management of pricing within the organisation
- Having excellent market intelligence tracked, reported and analysed.
- Re evaluating the long terms strategic pricing power for the upturn in demand – many firms do not take advantage of the demand upturn until late in the demand cycle
- Ensure the value created by the firm is priced accordingly using a total market strategy appoach as opposed to a dispersed salesforce only determined pricing model

To achieve real margin expansion, you need to invest in pricing management resources to support strategic and tactical decision making

Contact Pricing Insight on +61 2 9091 0226 to get your pricing management program started, or see our suite of Consulting Services for further information