B2B Pricing During Generational Inflation.
Unprecedented inflation, raw material shortages, and logistics challenges continue to plague B2B Professional markets. This type of prolonged inflation has not been experienced since the 1970s and has created a sense of urgency in companies to act on price increases to avoid further margin erosion.
But a blanket-approach to B2B pricing may not drive the results you are looking for. Whether you are a supplier, a distributor, a wholesaler, or a reseller, the current wave of inflation affords you the opportunity to transform the way you price products and services using a more targeted approach.
Assuming you’re bought in on the value of optimizing your pricing, the challenge is how? Data can drive the answer to this question.
A Targeted Approach to B2B Pricing
All your customers are different. They have varied margin profiles, they have unique growth opportunities, and they have differing costs to serve. One size fits all blanket price increases across your customers and products is no longer the answer. Data driven solutions allow you to tailor pricing based on customer differences, and ultimately optimize how you take price and how you impact your bottom line.
The concept of Precision pricing is highly targeted, enabling managers to base prices on each product’s true, current costs and each customer’s true, current profitability.
Different customers should be treated differently, informed by factors such as the cost to serve, historical performance, and value of the customer or product.
“Precision pricing is the key to pricing in today’s inflationary environment and in the mixed-inflation markets we can expect in years to come” according to Jonathan Byrnes and John Wass in a recent Harvard Business Review publication.
Leveraging Data to Optimize Pricing Strategies
Data can be utilized to accurately segment customers into different groups based on various criteria, unique treatment strategies may be developed for each group, and targeted pricing plans incorporated into these strategies to maximize ROI.
Data not only allows for a more targeted approach to your pricing strategy, but also allows for more transparent business negotiations. You can arm your sales force with the with the right tools to justify increases. No business likes price increases, but they tend to be receptive to ones backed by a well-articulated and robust rationale.
Leveraging data to optimize your pricing strategy should include the following practices:
- Determine your actual costs and profits – segment customers not just on volume and margin but also cost to service and historical performance
- Take a data driven tiered approach to discounting – focus on high value customers or highly differentiated products
- Empower sales force with right tools – provide detailed, accurate, data-driven rational for price increases
Precision‘s big data solutions help our customers understand the current market pricing for key categories, customize their treatment strategy by customer, and measure realization of price increases. Each of these steps are essential while trying to swim through these generational inflationary waves.
“The insights and assessment of our current contracts allowed us to strategically price our business to manage unprecedented inflation in the towel and tissue space. The impact of the increase will have a significant benefit to our bottom line. Additionally, the analysis will enable us to focus our efforts on which customers to focus and grow with and those that we can manage both the margin and mix going forward” according to Derek Gracias, Vice President AFH Sales & Marketing, Kruger Products L.P.
Even when inflation ends, we don’t expect a return to the era of stability that guided previous decision making on prices. Companies will always need the ability to respond quickly, precisely, and confidently as conditions in their industries continue to change.
By implementing a targeted pricing strategy backed by data, companies will not only improve their position during inflation, but they will also build the capability to act quickly and more profitably for future pricing decisions.
Learn more about Precision’s proprietary data models and professional business solutions at www.precisioncorp.net.
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