Manage Inflation with Pricing Technology

March 29, 2023

PROS, Inc.

Businesses are facing constant uncertainties brought on by supply chain issues, political disruption and record inflation. Supply chain disruptions and rising costs have also impacted everything from transportation to raw materials. Each hit ricochets across the economy. For example, in response to rising fuel costs, Amazon recently imposed a first-ever surcharge on merchants.

The impact of economic uncertainty can be severe in many industries. “In the UK, the year-over-year increases in copper have exceeded 50%, containerized freight has exceeded 159%, and cold rolled steel is up 200%,” said Nick Boyer, Director of Strategic Consulting at PROS, in a recent webinar on managing margins in times of inflation.

Munich-based chemical company Wacker Chemie AG, like so many other global manufacturers, is facing its share of issues with raw materials which either aren’t available or can only be purchased at high prices. “Silicon metal, which is a key raw material for us and typically priced at around US$2,000 per ton, went up in the second half of 2021 to above US$9,000 per ton,” said Markus Gebhard, Global Manager of Market & Competitive Intelligence at Wacker, who also participated in the webinar.

What do these inflation and cost volatility challenges mean for your pricing strategies and processes?

You can’t control economic shocks and skyrocketing material prices, but there are things you can control to turn inflation into a strategic opportunity rather than a tactical challenge. It begins with pricing strategies that are rooted in best practices. With the level of advanced analytics and data intelligence available today, you can quickly make far more informed, faster, and proactive pricing and selling decisions than your predecessors could just a few years ago.

Here are three things that organizations should do to price and sell effectively during times of rising inflation and market volatility:

Make sure your organization’s pricing strategy is nimble and agile.
High business volatility requires fast adaptation of pricing. Insight and agility are key. If it’s taking three weeks to update prices and raw material costs shift rapidly, then prices aren’t reflecting what’s going on in the supply chain, opening the door for revenue leakage.

“One of the biggest challenges we see is companies that have static commercial concepts,” said Dr. Marcus F. Demmelmair, Senior Manager of Pricing and Commercial Excellence at Accenture, who also joined the conversation. “They use concepts that are not built for high volatility markets and cannot be quickly adapted,” he added.

Is your approach to inflation and rising costs reactive rather than proactive?
Are you able to make frequent pricing adjustments with speed and efficiency?
Are you able to consider all the market factors affecting pricing?

Resilient companies are able to promptly refine their pricing strategy, having both visibility and understanding of their macroeconomic environment as well as insight into their own data to generate new prices more frequently. Price Optimization and Management (POM) software has this capability.
Ensure the right systems and infrastructure are in place.
Rapidly rising inflation will be particularly challenging to manage for those businesses that use outdated, inflexible pricing processes.

“We still see, surprisingly, a lot of Excel-based pricing,” said Demmelmair.

Companies that have sophisticated price optimization and management software in place can make well-informed decisions in a timely manner, enabling them to outperform businesses still relying on Excel-based pricing methods that prevent them from quickly executing price changes. Organizations that leverage AI have visibility into customer and product profitability to analyze data more frequently. Leveraging AI empowers you to execute change faster — making you more likely to fare better through seasons of inflation.

“Being able to bring market analysis and seasonality components, and to measure demand elasticity for each product and each segment, is not a luxury anymore,” said Boyer. “More and more companies are recognizing that relying on sophisticated price management and optimization is essential.”

Is your business missing the powerful analytics that allow more sophisticated strategic responses to inflation than simply raising prices or accepting smaller margins?
Does your business have a handle on all the data that would impact your pricing decisions?

Now is the time to move from tool-based pricing like Excel to integrated price optimization and management software, which enables structured, error-free price adjustments, automation of price rules, and much more. Smart technologies and dynamic pricing software can analyze data and recommend optimal actions faster and more accurately than pricing professionals sorting through a mountain of data.
Carefully plan your rollout of new prices to the sales team.
Don’t underestimate or minimize the importance of enabling the sales team to carry out your pricing strategy. When sales teams don’t receive sufficient support, businesses end up with half-hearted execution of their price campaigns.

“This is another common challenge we see,” said Demmelmair. “Organizations often don't have enough concepts, tools, and methodologies available to really go all in and execute their pricing and profit strategy.”

This phase is critical in ensuring transparency internally and externally so price changes can be well received and accepted.

Is your business experiencing a lack of buy in from the salesforce due to frequent pricing changes?
Are your salespeople frustrated with the lack of time to execute pricing changes?

Instead of expecting the sales team to analyze data and know which prices and discounts are appropriate, POM software streamlines the pricing process to give the sales team access to the answers they need. Leading companies are using the power of AI to provide this prescriptive pricing guidance—and are achieving game-changing results.

How can the PROS Platform help you address these challenges?

The PROS Platform provides integrated analytics, a pricing engine, and artificial intelligence, all combined and integrated into customer agreements, to help throughout the entire pricing process, including:

End-to-end pricing management and optimization capabilities that seamlessly extend into selling workflows.
AI-based price optimization that allow businesses to enable personalized pricing recommendations, fit for every buying scenario
Comprehensive and user-friendly analytics, embedded into the platform, that enable pricing and sales leaders to make better, data-driven decisions

Get started on your path to pricing excellence

Times of strong inflation and market volatility, and the resulting margin and slippage, can reveal outdated approaches in pricing and sales. However, organizations that are grounded in pricing best practices, informed by advanced analytics and AI, and who support the salesforce can not only manage margins during these dynamic market events, but also create healthy pricing practices and strong customer relationships.

“Luckily, we started streamlining our pricing process and selling cycle several years ago,” said Gebhard. “This really helps our entire end-to-end process, from the strategic price-setting level down to the execution level.”

Here are additional resources to help you learn more: