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Managing pricing complexity in uncertain times Uncertain global conditions and supply chain shortages are creating significant challenges for Australian businesses. Articifial intelligence (AI) can help businesses manage while also meeting business objectives. By Haley Glasgow. In 2022, wildly fluctuating material availability and exchange rates are making it impossible for Australian businesses to do the basics – price their products correctly – putting strain on operations or customer relations as they either absorb the costs or pass them on to the buyer. While this situation is unlikely to ease soon, government and industry are nonetheless looking towards economic recovery. For example, in February the Federal Government announced that it’s investing $2.2m into research in the manufacturing sector. This is a step in the right direction. But in the meantime, manufacturers need to address market volatility to mitigate the risk of further business closures. Margins are eroding, and the legacy way of doing things is no longer fast enough to stay competitive. Today’s manufacturers need to fast-track e-commerce channels to overcome competition from imports and online sources. Leveraging technologies such as artificial intelligence to inform pricing strategies is one way to help achieve that. Let’s take a look at how AI can inform and accelerate the sales cycle while providing customers with the customised and efficient sales process that they demand.
Adapting a dynamic pricing strategy The digital economy has evolved much faster than predicted. B2B buyer expectations have shifted, non-traditional competitors have entered the market, and costs are constantly fluctuating. B2B businesses need better visibility into market dynamics so that they can react quickly, in real time, and at scale to protect margin. Manual methods no longer suffice when it comes to setting and updating pricing, as they struggle to keep pace with the volume and logistic complexities associated with the manufacturing sector. Instead, manufacturers need to adopt a digital mindset and embrace AI-based price optimisation and management. Pricing fast and smart is crucial to a company’s success in business. By implementing a dynamic pricing strategy, B2B companies can set flexible prices for products or services that incorporate realtime market conditions, capacity, input costs and competitive perspectives. It also offers price consistency and greater accuracy, giving sales teams the confidence to execute sales without the fear of making mistakes, or remove the guesswork out of negotiations (e.g. underselling); one of the largest sources of profit leakage. Dynamic pricing isn’t just for big business either. It doesn’t require undertaking an overly costly or complex digital transformation project that lasts for years. While there is no one-size-fits all approach to adopting dynamic pricing, smart price optimisation and management software, businesses can pinpoint sources of revenue and margin changes using real-time data and personalisation.
Driving maximum value for customers With the shift to digital and self-serve channels, B2B buyers demand an efficient online experience and quick quote response rate. According to Gartner, 96% of customers who had a higheffort experience reported being disloyal, compared to only 9% of customers with low-effort experience. Many are also seeking personalised recommendations to obtain more value from manufacturers. According to Hanover research, more than half (53%) of respondents said they would pay as much as 5% more for personalised recommendations – a staggering premium for purchasing teams who are usually incentivised to find the deepest discounts. The way manufacturers price a product has a knock-on effect to the customer experience. This is especially true in the current market where supply chain shortages are heavily impacting pricing and material availability.
AMT APR 2022
Configuring pricing using traditional methods in response to market disruption can cause pricing to fluctuate dramatically without cause, resulting in confusion or alienating customers. By leveraging dynamic pricing, manufacturers can predict how the market might fluctuate over the course of a year, and set prices accordingly to account for those fluctuations and provide consistency. For example, a leading dairy manufacturer based in New Zealand was faced with widespread supply chain disruption and increased market volatility as a result of the COVID-19 pandemic. Due to having a dynamic pricing solution, the manufacturer was able to better set contract prices for their buyers while managing risk and keeping margins intact. By transforming its end-to-end buying and selling processes, the manufacturer can proactively pursue sales and margin opportunities. This is an important aspect to alleviate long-term pressure caused by the COVID-19 pandemic.
Looking ahead As supply chain disruption and exchange rate fluctuations continue, manufacturers need to look for every opportunity to maintain a competitive edge and protect against the next market event. The pandemic perpetuated this need, but now it’s inflation and next it could be deflation – there will always be factors impacting the markets, and in turn, pricing and margins. For manufacturers feeling the squeeze, dynamic pricing can relive pressure. Now is the time to embrace innovative tools like AI-driven dynamic pricing, to help manage pricing complexity and improve the buying experience for customers. Haley Glasgow is Head of Strategic Consulting & Alliances – APAC at PROS. www.pros.com
