Don’t Forget Your Parachute!

Many years ago, when I was much younger, more attracted to risk and much less afraid of heights, I jumped out of a perfectly good airplane…with a fully-functioning,fully inspectedparachute.Ourjumpmaster - a person designated to train and guide us in parachuting - made sure we were well-prepared and made certain we never underestimated the danger involved nor the preparation necessary to land safely.

While the analogy could seem extreme,orthe paradigm a bit removed from the business world, there are corollaries to what may be ahead for B2Bpricingandsales teamsin 2022 and beyond.So,buckleup, getyour ‘chute’ ready to pull,and consider the need for ajumpmasterto support you before you take the leap.

An Unprecedented Climb

The global pandemic brought with itnear-unprecedentedchallenges to keep pricesmarket-alignedfor B2B customers. Even pricing strategies grounded in advanced data analytics, informed by real-time market signals and supported by well-planned price execution kept pricing teams and sellers busier than everas demand declined in some sectors and raw materials costs shot through the roofin others. One manufacturing company I talked to increased list prices eight times, in aggregate over 100%,in 2021. Others have tripled their prices. Steel prices alone tell the story of the acceleration of raw materials costs,which affected everything from aluminum to zinc, lumber to plastic,and everything in between.

Warning: Potentially Steep Grade Ahead?

While no one can say for sure, most executives believe raw material costs will come down in 2022as supply chains are restored, inventories are replenished, and production output begins to catch up with demand.Nevertheless, both the challenge and opportunity of capturing or holding price (and therefore margin) is top-of-mind for most executives. When costs come down, eventually, there’s an expectation for price reductions, creating a bit of tug-of-war within sales channels – particularly channels involving distributors and dealers who are also trying to hold price along with manufacturers and suppliers.

Price changes, up or down, are not simple to carry out and can carry inherent financial risks. A recent study showed that poor management of pricing actions can wipe 66 cents off every dollar of potential price improvement.Thissuggeststhattwo-thirdsof the opportunity to hold price as costs come back down could be lostifthe right strategies and toolsare notin place, resulting in giving back too much. This is comparable to jumping out of a plane without a fully functioning parachute or no parachute at all.

What can I do now to ensure I ‘parachute’ safely and effectively in 2022?

Data and Analytics

Data is important for pricing in all market conditions. Historic dataprovidescontext for future pricing decisions and cost pass-through,upor down. By understanding and forecasting costsandsupply and demand dynamics, B2B companies are prepared to execute more effectivelyon expected cost decreases (as well as future increases).By evaluating the margin contribution at the segment or customer levelandunderstanding contractual obligations and opportunities for renegotiation in a systematic way enables proactive,timelyand informed price setting decisions and effective priceexecution.

Strategy and Planning

Most would agree the primaryobjective of a sound pricing strategy is the protection of margins. But pricing teams also must keep their eye on revenue and be sensitive to the need to continue to grow while tempering the desire to grab market share through lower prices at suboptimal margins, as costs decrease. For price-sensitive commodity-based businesses that are highly affected by raw materials, the focus needs to be on rapid and full cost pass-through on the way up, careful and considered price decreases on the way down. In its simplest form, this is achieved by linking prices directly to commodity indices. But this approach can still:

Be reactive or overly generous Lead to delayed cost pass-through and consequently margin loss on the way up Lead to overzealous price reductions on the way down to customers who previously benefited handsomely on the way up

This dynamic can be damaging even for a business selling specialized, differentiated products and services in whichmargins are not directly tied to cost movements but where expectations are tied to market factors.

Tracking, Reporting, Forecasting

Market leaders use advanced analytics and reporting for both tracking historical results and forecasting the future. When changes in rawmaterial costs and imbalances between supply and demand come intoplay,they are prepared to meet these challenges thatare nottypically experienced in static markets.They have pre-built capabilities to proactively change their pricing and contracting approaches in all market conditions. Rapid identification of cost movements, combined with intelligent workflows to address outdated or margin-bleeding customer agreements that should be renegotiated,can result in quick wins and margin protection/enhancement.

Confidence, Conviction and Commitment

Sales teams can gain confidence in holding effective price-change conversations when they are armed with market-aligned pricing and the right messaging. Sellers will undoubtedly need to anticipate buyers’ questions and be comfortable discussing price. Organizations that have a comprehensive strategy and communication plan will find it much easier to not only institute price changes but to see those changes effectively executed in the market. Pricing and commercial Leaders who are focused on building sales teams’ confidence and arming sellers with what they need will find price-change conversations aren’t as risky as they might otherwise seem. Instead, they find, the context around price conversations can and should be seen as a win–win for both sides. Here are some more practical tips:

Empower sellers with highly credible negotiation guidance Implement a process that provides sellers with approval thresholds tied to price guidance ranges Provide automated approvals where possible Supporting analysis where needed Make sure new price guidance is aligned with: Pricing Strategy Costs Other prices (products, customers, etc.)

Alignment with sellersbuilds confidence, conviction and commitment. That, combined withalignmenttothe market,will drive results.

Technology Investments

Many global companies, even the largest B2B enterprises, were ill-prepared over the last two years to appropriately price products in realtime tomaintainmargins in such a fluid market. Lacking technology to implement dynamic pricing, they found themselves unable to keep pace with the acceleration of raw materials costs. This wasmade clear whencompanies startedout in 2020 giving their customers 30-, 60-or even 90-day notice for price changes based on what they were seeing in cost changes - only to resort in 2021 to ‘effectiveimmediately’ price changes just to keep up with their suppliers.The winners in 2022 and beyond will have technology to support potentially inevitable cost reductions that will allow themtodynamicallypreserve marginsand enforce price changes that are acceptable to customers as well as to their leaders and investors.Technology will become their most valued ‘parachute’.

Zilliant has been enabling B2B companies to proactively deliver optimized prices in all market conditions formore than 20years. We arearecognized leader according tothe2021IDC Marketscapefor Price Optimization and ManagementApplications,as our customers attest to Zilliant as aproven expert that can help you preserve margin and capture growth in 2022 and beyond.

Do you need a jumpmaster to help you parachute down? If you want to ensure you are prepared to take proactive action amidst future uncertainty, connect with me on LinkedIn, send me an email or contact our team here