Industrial Manufacturers: Overcome Challenges with Intelligent Pricing

Learn how industrial manufacturers can tackle both internal and external pricing challenges with intelligence and speed by leveraging the power of a price optimization solution.

Industrial Manufacturing is Facing Both External and Internal Challenges

The industrial manufacturing industry is currently facing challenges from all angles. First, today’s inflationary pressures, supply chain issues, and labor shortages are negatively impacting margins for many manufacturers, which is leading to an increase in costs which must be passed through, via pricing for products and services. Unfortunately, there is no relief in sight when it comes to input cost pressure.

Making matters more complicated, industrial manufacturers face common challenges brought on by their own industry dynamics. This includes pricing for configured or custom products that might be only made one time, avoiding knee-jerk cost-plus pricing for discrete products and determining the best approach to engineer and price products to ensure a revenue stream from the aftermarket parts business. Essentially, pricing structures and their inherent challenges vary depending on the type of products manufactured. Before getting into solutions, let’s take a closer look at each of these challenges.

Pricing Challenges for Industrial Manufacturing

Discrete Products

In this mode of production, costing can be simpler since you know what components you need from the Bill-of-Materials and can plan accordingly. However, this also means that cost-plus pricing tends to become the go-to strategy. While it’s easy to markup costs across the board to target a certain margin goal, overly broad cost-plus approaches don’t allow for any consideration of price elasticity. Customers are unique, so selling to them in a uniform way leaves profit on the table.

Separating customers and products into price segments and measuring price elasticity for each segment is critical. When the pricing team is equipped with this information, prices can be raised where feasible, or lowered where needed, maintaining volume and share. Additionally, precise segmentation allows pricing teams to drop customers into a profitable matrix system. These matrix prices can be used effectively in eCommerce systems, especially for products a customer may not have previously purchased. When it comes to negotiations, pricing can be delivered to sales reps in a CPQ tool as a Start/Target/Floor deal envelope that is highly relevant for each selling circumstance. In customer-specific pricing scenarios, manufacturers should consider a deal management solution to actively maintain the health of customer price agreements and efficiently manage approvals. Systematically maintaining customer-specific prices can enable manufacturers to tailor and personalize prices for customers in digital channels as well.

Configured Products

Many of the custom-engineered parts, products or equipment produced are only made once, meaning each pricing decision is unique. There are two complications that manufacturers encounter: (1) how do you price something that you’ve never made, let alone sold, before?; and (2) you’re not dealing with a single SKU, but rather parts and pieces that get configured into a final product. Therefore, it must be designed and costed out before even considering the price.

The next step is to determine how much pricing power you have (i.e., how differentiated you are) versus your competitors and drive a price accordingly. Most will gather all the built-upon costs and add a markup. But how rigorous is the decision-making for said markup? Is it a guessing game based totally on gutfeel or what you consider a rule-of-thumb fair margin? For those that haven’t transformed their pricing, the answer is usually yes. This means there’s almost certainly money left on the table and in some cases overpricing, which results in lost sales and customer dissatisfaction.

It is much more effective to arrive at a markup using a scientific approach. You can (1) build up to a cost and apply price optimization to determine the optimal markup based on the product configuration and selling circumstance; or (2) build up to a cost, apply a markup to a list price and then optimize for discount guidance. Both tactics leverage real transaction data and customer/product price elasticity into the decision, delivering sizable growth to the bottom line.

Aftermarket Parts

Manufacturers need to determine how best to engineer and price products upfront to ensure they get the downstream aftermarket business. The original product price serves as a guideline for the aftermarket price of its component parts.

Pricing it too high upfront could be problematic and combining that with the highly variable nature of who you’re selling to in the aftermarket creates a classic price optimization scenario. How do you produce a competitive list price with so many buying personas to account for? How do you purposefully assign customers to a matrix that produces market-aligned prices? What kind of discount guardrails can you provide to sales reps to help them negotiate customer-specific agreements or spot transactions? If selling online, how do you enable automated negotiation functionality? The solution lies in the power of price optimization.

Market Volatility & Inflationary Pressures

Cost fluctuation represents an ever-moving target that hinders profitable pricing. Market volatility combined with stubborn price inflation and creating and selling products in very different ways with different costs to wildly different customer segments can have a negative impact on a manufacturer’s bottom line. The fact is that it’s a near impossibility to consistently arrive at the best price using outmoded tools and processes. Solving these internal and external challenges requires data science, advanced price management, and deeper customer/product segmentation capabilities.

An Intelligent and Scientific Pricing Transformation is Critical to Success

“Acceleration in digital technology adoption could bring operational efficiencies to scale. Manufacturers looking to capture growth and protect long-term profitability should embrace digital capabilities from corporate functions to the factory floor,” states Deloitte.com’s 2022 manufacturing industry outlook.

Manufacturing companies that succeed in today’s landscape will be those who put pricing at the forefront of their evolution. Pricing teams need intelligent tools and reliable data to set, optimize, manage, execute, and deliver prices in all go-to-market channels efficiently and effectively. Only then can price be used as a strategic lever to improve financial performance. Sales reps need market-aligned price guidance to make the best possible commercial decisions. Finally, customers expect price transparency and consistency, regardless of the sales channel.

Price Optimization Software Addresses Pricing Challenges with Speed & Precision

As outlined above, industrial manufacturers are met with unpredictable events that necessitate a pricing change – and these events are happening more frequently. The challenge lies in orchestrating a comprehensive pricing process to overcome those obstacles. Manufacturers should consider a smarter approach to pricing and leverage the power of a cloud-native price optimization solution. This will enhance a manufacturer’s pricing capabilities by:

Allowing pricing teams to set optimized, market-aligned prices that are contextually relevant for every selling circumstance Addressing all price types or modes, including list, matrix, negotiated, into stock, override, customer-specific, project, and configured pricing Empowering pricing what-if scenarios to determine the predicted revenue and margin impacts of different pricing strategies and decisions Enabling pricing teams to intelligently respond to dynamic changes in market conditions Accurately measuring the impact of pricing strategies on business performance Scaling to support large product assortments in highly dynamic pricing environments

Next-Generation Price IQ®: The Market’s Fastest and Most Transparent Price Optimization Solution

Zilliant recently launched Next-Generation Price IQ®, a new and powerful update to the B2B industry’s most deployed, sophisticated, effective, and understandable price optimization software. Even before this next-gen update, Price IQ® was the only price optimization software with the capability to measure price elasticity, address pricing complexity, ensure price alignment, deliver dynamic, omnichannel pricing, and much more.

But with this massive leap forward for the market-leading price optimization solution, Next-Generation Price IQ® delivers major advances to help B2B companies fight inflation and market volatility with more speed, power, and precision while maintaining market alignment and generating prices that are easily explainable and defensible. Here’s a breakdown of Next-Generation Price IQ®’s most important enhancements:

Crystal Box Optimization: This allows crystal-clear visibility into how the optimization engine generated market-aligned pricing. At each step of the optimization process, pricing, data science and sales teams can see precisely how the optimization engine produced each price and view the associated transactions with inline analytics, make adjustments, and see how price changes will impact revenue and profit. Pricing teams and data scientists can now also perform sophisticated tasks such as: evaluating the pricing power of different data attributes, testing and comparing different models, and incorporating their own models and algorithms. 10x Improvement in AI-based Optimization Speeds: Next-Generation Price IQ users have the ability to test different what-if scenarios, account for changes in the market, calculate price elasticity and now can generate optimized prices faster than ever before. With this update, Zilliant is helping B2B companies respond to a supply-constrained, pandemic-disrupted, and inflationary time before their competitors can. In addition to accelerated optimization, customers are also finding it much easier to interact with the system itself. Next-Generation Price IQ® and Zilliant Price Manager now have a unified interface that is extremely intuitive and provides a centralized location to access multiple optimization models. Faster Implementation / Lower Cost: Next-Generation Price IQ® can be up and running in 90 days thanks to enhancements in our underlying SaaS components and advancements in deployment methodology. We’ve also lowered the total cost of ownership by introducing the ability to support multiple pricing models and scenario templates. Customers can now simultaneously optimize multiple lines of business within one model instance. Finally, our customers have reported a 10x return on investment in less than a year with Zilliant Price IQ®, as it remains the only optimization solution that is constraint-based, is goal-seeking, and can measure price elasticity in the B2B market.

Contact us today to learn more about how you can overcome industrial pricing challenges with the best-in-class price optimization solution, Next-Generation Price IQ.