Market forces have created an existential inflection point for many B2B manufacturers, distributors and service providers with respect to the global supply chain, forcing them to rethink logistics and supply and demand dynamics on the fly.
Many of these considerations have implications for pricing and, when addressed thoughtfully and intentionally, pricing science can serve to better manage volatile conditions. From inventory positions and fulfillment to the seismic shift from in-person sales to digital channels, reimagining the traditional pricing approach can mitigate detrimental margin effects. Here’s how pricing implications and reimagined strategies can lead to better financial outcomes.
Inventory position and fulfillment methods
When the business impacts of the Coronavirus disease (COVID-19) hit, companies found themselves starting from wildly different inventory positions. Some were heavily stocked, while others were not. Distributors that adhere to a just-in-time stocking strategy wound up behind the curve, especially if their supplier partners also lacked readily available inventory. Contingency plans like a geographically diversified supplier base may shield companies from the worst upfront impacts, but the long-term reverberations of the crisis will affect even the most prepared. Communication up and down the supply chain and creative, flexible thinking is critical even for well-stocked companies with diverse supply options.
Another fluid situation involves the methods companies use for transporting goods around the world, either to supply them or sell to their customers. Companies need to keep an eye on the effect this will have on the cost of transporting goods and adjust where it makes sense. While cheaper oil is good news for some, it’s potentially catastrophic for companies who sell to the oil and gas sector or sell downstream oil products and fuel, particularly commodity products (derivative specialty products may fare better). These businesses more than ever need to have a data science-driven awareness of price sensitivity to make an informed decision about where to follow the market down and where to try to maintain margins and pricing power.
Seismic shift to e-commerce
The traditional field sales model has been uprooted in the era of social distancing. As such, e-commerce has become increasingly important, yet it also further taxes shipping, transportation and logistics services. Digital Commerce 360 reports that due to “challenges on all fronts of e-commerce—from supply chain, inventory management, order fulfillment and delivery to customer service and even search engine optimization—many B2B e-commerce executives say they have never seen business conditions change so rapidly.”
Companies equipped to take orders online and have invested in a quality online customer experience, as opposed to those who have not made the effort to get their customers set up on e-commerce platforms are in a better position to serve customers and potentially
gain some wallet share. Keys to success here are rational and market-aligned pricing, personalized product recommendations, inventory availability and speed of delivery.
Though none of what we are collectively going through can be described as normal, B2B companies must move decisively to meet the moment on its terms. Reacting quickly, intelligently and with compassion from a pricing perspective is something companies can still control. Below are three immediate steps B2B companies should be taking to mitigate the current impact:
No 1. Use the data you have and understand it
B2B sellers and pricing analysts are not immune to market speculation, and it’s natural for kneejerk price cuts to follow. People are emotional at a personal level and at a business level,
meaning the fear that sharp drops in business can cause may lead to price cutting as sellers and pricers alike seek to recover lost volume. But, a corporate pricing response that doesn’t take into account factual data will no doubt lead to mistakes.
Similarly, nervous field sales reps may start dropping prices to the floor preemptively or overriding price targets based on instinct rather than fact. They need guidance informed by data and guardrails to limit this behavior.
Take an objective look at changes in recent revenue performance, customer transaction history and selling prices, and customer-specific price sensitivities, ideally utilizing comprehensive visual analytics. Make an assessment at each product category level to get granular on which prices need to move down and which can stay at current levels. Both the pricing department and sales team must trade in the blunt approach to pricing in favor of an informed and more customer-specific approach.
No 2. Use your people to collaborate, communicate and coordinate
At a time like this, companies cannot operate in silos. The supply chain is too strained and interlinked with each department. Procurement informs pricing informs sales and vice versa. Executive leadership is crucial to removing communication barriers and setting up a strategy that is flexible as seismic events seemingly cause great change daily.
Additionally, it’s just as vital to communicate freely with external partners right now and in the foreseeable future. That’s because a disruption with your supplier’s suppliers can start a chain reaction and the same goes for your customer’s customers. This entails demand planning, delivery issues and contingency planning, supply chain challenges and more.
It’s a daily reminder that we’re all in this together.
No 3. Use the right tools to execute
With accurate data in tow and communication lines open with internal and external stakeholders, it’s time to execute. What many are finding is that accounting for drastic cost changes, understanding customer willingness to pay, mass updating price agreements, predicting the impact of price changes, and swiftly changing course as the market demands are simply not realistic manual tasks. This is especially true in the midst of unprecedented global crisis, when yesterday’s plan might end up in today’s waste bin.
Companies in the best position to respond to these rapidly changing dynamics have tools in place to perform these actions efficiently and intelligently. As input costs change dramatically, pricing teams need to rapidly calculate cost pass-through at scale. They need to determine pass-through strategies at the specific product and category levels while taking into account what prices different customers will bear.
Which products do they want to pass on all the costs for? To stimulate demand, are there some products for which they should only pass 50% through? With data science and dynamic price management software, pricing teams have the agility to test different strategies, make updates quickly in a centralized hub, and accurately predict the impact different strategies will have on revenue and margin.
The ability to perform “what-if” modeling allows pricing departments to be proactive. Don’t wait for management to come down with a blanket price decrease directive. A good “what-if” analysis will let you advise your executive team on powerful, possible actions with high likelihood of success. By understanding where customers are historically sensitive and where they aren’t, a proactive price manager can make targeted changes at the category level that preserve margin without decreasing sales.
No one has an airtight playbook on how to deal with a pandemic of this scope and all its personal, workplace and market implications. B2B companies will have to be flexible, proactive and creative in their business plans. The first step to executing a strategy is gathering information. Closely examine your demand patterns, understand how your specific supply chain is impacted and make decisions based on accurate data rather than emotion.
The three-step plan relies on data, people and technology. As we continue to navigate the supply chain impacts of this pandemic, surgical pricing and cost management will become even more important.