How can price management help a business respond to unanticipated dynamics and disruptions in the market? On the heels of COVID-19, we’ve just been given a much more abrupt example.
The Ever Given may have been finally freed from the banks of the Suez Canal, but the effects of an even like this will resonate for some time to come. Companies in sectors affected by the blockage of normal commerce traffic through the Suez that practice price management were in a position to properly manage this situation and mitigate its impacts – or even realize additional value.
In a situation of short-supply caused by an incident like this, it becomes more important than ever for a seller to be able to respond to their customers commercially. If I have Widget X stuck on a ship in the Suez Canal? I need to immediately assess which outstanding orders are for Widget X, which current pending quotes are for Widget X, and which possible opportunities there are for Widget X. This will need to be balanced against existing inventory.
How a savvy company uses price management
As we saw in other short inventory positions early in the Coronavirus pandemic, the savvy firm prioritizes its most lucrative customers within an agile price management strategy. This requires knowing – to a reasonable degree of precision, with reasonable topicality – which customers are most impactful, in both terms of total revenue, and in terms of profitability.
A solid capability for managing like-products (form-fit-function) is essential. This is missing for many, many organizations. Using the example of Widget X from above, decisions need to be taken to offer replacement Widget Y. This will have different incarnations depending on whether the order is firm, pending, or speculative.
Lastly, organizations should think about the ultimate mechanism they have for communicating to the marketplace: price.
By understanding the contextual products to Widget Y, companies can incent their customers to select items that are in stock by making the prices of those items more favourable (the converse is also true: simply raising the price of items known to be on the water).
And remember – using agile price management capabilities means you can protect security of supply for your customers. Nobody wants to be at the end of the line at a “bank run on the plant” driven by intermediaries whose only goal is arbitrage, rather than ongoing, reliable business partnerships…
Header image courtesy of: kees torn, CC BY-SA 2.0, via Wikimedia Commons