April 1, 2020
The sky is falling. Experts predict a sharp depression for one or two quarters in the double digits. Some argue that this shock to the economy could prove worse than the 1929-1935 Great Depression and that it might take 18 months to fully recover. The reality is that we are all impacted, even the sector benefiting by a short-term boost in demand. Pricing and sales professionals are in the middle of a fire fight right now and there are many considerations of what to do and not to do when panic strikes.
Read: Pricing Disruption Ahead
In this crisis, there are some opportunities to make some changes that can benefit your organization and your customers in the long term. Being ready now for Q3 and Q4 recovery and collaborating with sales, marketing, and supply chains teams now can help reinforce the P&L when we exit this turmoil.
Here are six ideas.
- Review your strategic account commitments and prepare to make changes. Focus on your top strategic accounts and analyze their commitment for 2020. I am referring to volume discounts, rebate thresh holds, share of wallet commitment, etc. The sharp slowdown is going to force you to have discussions with them eventually as they might not meet these commitments. Do you stick to your guns or do you have proactive hold discussions on relaxing these commitments in exchange for some additional share of wallet or some reduction of high cost-to-serve activities? Remember that your competitors are going to run the same type of analysis and your Asian competitors will come out of the ditch before us.
- Move from fee to free and start monetizing more. You might have to make pricing adjustments in 2020 to pass the storm. The reality is that this might come depending on the intensity of the recession and the speed of demand recovery. I always say to never waste a good crisis. Start working internally at monetizing parts of your offer (services and software, for example) that were taken for granted or given away for free. In exchange for possible concessions, start charging fees for the freebies that provide value to customers. That means launching a monetization and customer value program now in preparation for the downturns in Q3 and Q4.
- Exchange concessions for permanent changes in some favor, legacy pricing, or changes in business rules. There are always concessions or special conditions that have been grandfathered in the customer’s mind. It is time to remove this and hit the reset button. Work on relaxing and modifying your business rules to save supply chains costs. Propose several levels of services to your accounts. Make changes that save you money for the next five years.
- Focus on cash and capex and quickly design PaaS and XaaS offers in the next 90 days. Some of you customers will be cash poor coming out of this crisis. It is a good time to offer subscription-based offers and pricing strategies to help them save on cash. It is now or never. If you needed a push to transition, you just got it.
- Talk with your accountants and evaluate impact of rebate accruals. I am sure you are on top of this. Our Q1 rebate accruals might be too high based on how this year is going to pan out. Make sure you modify your assumptions in the financial and pricing systems and worki diligently with your financial and accounting teams. You might need to stay agile with rebates and discount structures.
- Sit down with your legal and finance teams and review all strategic agreements and pricing contracts. Get ready by being prepared is the key to rebounding and facing a potential barrage of objections, requests, and changes. Contract compliance is usually never fully respected. Someone needs to prepare all active long-term pricing and supply agreements and prepare for tough discussions during Q2 and Q3. Holding a contract review with your legal and your finance teams is a good idea. You can never be too ready.
In times of crisis, leaders emerge and establish strong credibility. If you are a pricing professional, it’s time to step up your game up and focus on the recovery while you manage the shock. Take a 360 degree look at your business and collaborate actively with supply chain, legal, marketing, sales, and accounting. Hold extra pricing council meetings to discuss the current impact but also to prepare for the rebound.
Now is the time to make some of the changes you always wanted to make but never had a chance to do during good times and customers sat in the driver seat.
For more commercial excellence tips, download the eBook, 5 Simple Best Practices to Take Back Control of Your Pricing.