BrazilFour steps for B2B companies to implement price adjustments
According to the latest Global Pricing Study from Simon-Kucher & Partners, the large majority of B2B companies are planning price adjustments to respond to (external) developments such as inflation, rising raw material prices, mounting competition, or overturning crisis discounts which are eating into profits.
At the same time, however, the study also found that many B2B companies struggle to successfully implement price measures. Reasons for this typically include a semi-institutionalised pricing process (which involves many manual interventions and time consuming rounds of decision-making), a lack of defined pricing processes and digitsed operations, or insufficient focus from top management.
Illustrating the execution gap, 85 percent of industrial companies told the researchers that they are planning price adjustments in the coming year to respond to inflationary pressures. But last year, only seven percent of industrial companies surveyed were able to achieve a price realisation of 80 percent or more.
So how can B2B companies successfully implement price adjustments? Experts from Simon-Kucher & Partners outline four steps that can help make a difference:
Step 1: Make differentiated list price adjustments annually
Many companies tend to adjust their list prices too infrequently or if they do so regularly, they adjust them at a flat rate (for example: “plus two percent on everything”). As a result, more and more list prices of already highly competitive products have become “moon prices” – in other words, prices have been arbitrarily set and inflated since the initial pricing definition.
To successfully adjust prices, companies need to tweak their product prices in a differentiated manner, among others based on the degree of differentiation of the products, lifecycle phase, or product characteristics (fast-moving versus slow-moving).
Step 2: Make dynamic target price adjustments according to the situation
Situational, order-specific pricing and pricing decisions are an essential part of sales work. Unfortunately, many companies’ pricing is static, manual, and based on gut instinct. In addition, pricing is often based on guidelines and not stored in a tool or system. This makes following a dynamic approach and adjusting and implementing target prices in a timed and tailored manner practically impossible.
Companies need an agile pricing system that takes into account situational factors, such as product mix, customer type, and order quantity, and dynamic factors, such as inflation, currency development, and capacity utilisation. Implementing the right digital tool can help companies with pricing.
Step 3: Clearly manage the defined responsibilities and processes
Price is the number one profit driver. In terms of its importance for a company’s profit, the institutionalisation rate of price is still rather low at B2B companies. In many companies, the sales department is responsible for all aspects of pricing. However, above a certain size, organisations need to appoint someone, such as a pricing manager or pricing director, to take care of, maintain, and orchestrate all pricing-related processes and guidelines.
Those without a designated expert lack professionalisation and, as a result, pricing power. Companies should invest in such a position to serve as the intersection between product management, sales, and controlling can do so with suitable central/decentral positioning if necessary.
Step 4: Ensure the company has a suitable database and analytics capabilities
Even in the age of digitalisation, many companies lack the resources and therefore the skills to prepare and extract valuable, existing data from their systems for pricing decisions. Often, the problem isn’t that the data isn’t available but rather that it has to be extracted and compiled with a great deal of manual effort.
Many of the tools available to companies today, such as Power BI and Tableau, can create dashboards and perform analyses and are standardised enough to build a decision-relevant fact base. In addition, every company’s pricing department should have a workflow platform for triggering and carrying out list price adjustments or situational target price adjustments as part of their basic toolkit.
