Manufacturing Digital: Pricing and sales effectiveness top of mind for manufacturers

April 3, 2014-

By Sebastian Mamro

Pricing and sales effectiveness are increasingly becoming top-of-mind challenges for manufacturers, according to recent research from the 2013 European Pricing Maturity (EPM) Study.

The survey, based on responses from 120 business leaders, concludes that most respondents have implemented basic pricing management practices and transactional control, but have ambitions to go further.

The EPM study confirms what I’ve been observing throughout the EU market: manufacturers are accelerating their efforts to exploit the potential of big data analytics and improve the effectiveness of their pricing and sales strategies.

The main finding was that organisations over-estimate how mature they are around pricing: while most companies thought they were capturing all the value present in a particular sale opportunity, the reality is that most are still managing simple price lists or trying to price individual products in a smarter way. This leaves significant opportunities on the table.

There are also distinct differences between manufacturing sectors and what they consider as their main skills at pricing:

• Organisations in the chemical sector listed their top three strengths as managing discount strategy, pricing governance and overall price strategy. They were also much more mature in their approach compared with life sciences companies, which are mainly managing static price lists.
• Manufacturers in the automotive sector scored better at managing their price setting and tender processes, but wanted to improve their performance around price execution, monitoring and governance.
• The most mature companies when it came to pricing were in the Technology sector. This may be due to the rapid pace of change in this market; these companies are not afraid to look at their own use of new technologies to improve performance.
• Of those surveyed, the Fast-Moving Consumer Goods sector was surprisingly the least mature when it came to pricing management. Some large retailers are extremely sophisticated at their analytics based on customer data and loyalty information. However, many FMCG organisations only have static pricing and then discounting as tools in their armoury, rather than the full set of negotiation and service options that companies in the B2B space have.

Each industry also has its own sales processes and challenges to consider. For companies with fast sales processes and short supply chains, the approach to pricing will be different than those in regulated industries with long and complex product life-cycles.

For all manufacturers that want to stay competitive, here are a few recommendations based on the report’s findings:

Doing nothing is not an option

Manufacturers recognise that the status quo in pricing practices can’t be sustained. Approximately 28 percent of manufacturers are using manual spreadsheets for pricing according to the EPM study. If they don’t change their approach, they find themselves at risk of falling behind those that have automated their approaches to pricing. Anecdotally, one manufacturer I spoke with is managing hundreds of thousands of SKUs in scores of countries around the world and wondering what they could do to improve. The only answer here is automation.

Start by benchmarking your own pricing efforts

To gain a better understanding of how pricing strategies can improve sales effectiveness and profits, start with benchmarking your own pricing efforts.

Downloading the EPM study can give you an initial gauge of where you stand when it comes to pricing maturity within your own industry. Educate yourself by conducting a search for case studies and success stories that demonstrate how integrating people, processes and software can help sales professionals with more insight and guidance. This will help you negotiate and close more profitable deals.

What you’ll find is that leading manufacturers are already using data science to segment and analyse the vast amounts of data they collect in their CRM systems. This can identify common buying preferences, and prescribe new pricing and selling strategies unique to each customer segment. They’re also identifying additional products and services that similar companies are buying.

This is familiar in the B2C world – Amazon has done this for years with its recommendations for what other shoppers purchased – but it can be applied to grow sales opportunities in the B2B realm as well. By supplying guidance to sales teams around the potential for “like” products in similar customer situations, companies increase the odds of winning more profitable deals.

Take action to initiate the conversation in your own organisation

Once you’ve got a grasp of where you stand in terms of pricing maturity – and the potential opportunity of using big data science and analytics to enhance sales effectiveness and profitability – you need to begin the conversation with your colleagues.

The EPM study noted a clear correlation between an organisation’s pricing maturity and its ability to execute a more profitable pricing strategy. It concluded that “… it is crucial to invest in developing awareness of pricing across [the] organisation. Whether they decide to develop a separate team dedicated to pricing, or choose to raise skills across the sales, finance and marketing team around pricing management, this awareness will provide better long term results and higher opportunities for profit”.

Cultivating an awareness and appreciation of pricing management’s contribution to the top and bottom line takes time and effort to build a consensus among many stakeholders.

The EPM study points out that the biggest challenge for manufacturers lies in two areas: the implementation and execution of better pricing strategies, and in convincing top management that investment in pricing systems will result in a significant profit improvement.

However, every journey to success begins with a single step.  If you haven’t already, it’s time to take that first step on the road to exploring increased pricing and sales effectiveness through the use of big data. The market – and your competitors – won’t wait.