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Pricing Disruption Ahead

Stephan Liozu< Stephan Liozu March 20, 2020

Last year, I wrote extensively on the topic of disruption and the importance of using the right technology to face forces of disruption. We start 2020 with a dose of reality. We could have anticipated about anything but a global pandemic shutting down supply chains and closing thousands of businesses. So now we are in the middle of this crisis and we must manage the consequences and prepare for life after the pandemic.

Of course, not everything is under our control. But what we can control as pricing professionals is to maintain our level of discipline and to be prepared with robust scenario analysis. I propose 8 things businesses can start doing today to prepare:

  1. Stay cool and roll up your sleeves. Be the last to panic in a disruptive situation. As companies adapt to the new environment, we must avoid succumbing to panic and be ready to go deep into the data. This is a not an economic crisis. It is a pandemic with dire economic consequences. So, both supply and demand are collapsing. There is no need to rush in offering discounts and special conditions now.
  2. Mobilize your Pricing War Room and your Experts. This is your first action. Dust off your war room and get the experts mobilized in the form of a deal desk to support very dynamic challenges and the ability to make quick decisions. We are at war with this virus and we need to mobilize our pricing and data scientists. Focus on rational analysis, quick responses, and positive messages.
  3. Run advanced analytics to:
    • Identify verticals and strategic customers at risk: energy, aerospace, and travel are sectors that are under severe strain. What does that mean for you?
    • Develop scenarios: worse, neutral, best cases to present to management.
    • Identify mix changes that might go undetected: go deep into your mix analysis to detect changes in order patterns or pricing erosion. You might be attacked by a competitor without knowing it.
    • Track swings in orders and pipeline: work closely with your supply chain experts to track orders and the pipeline.
  4. Refresh your value maps and economic value analysis when you detect first moves of pricing changes by competition. There is no doubt that your price cutters will attack to maintain market share. The Chinese economy will recover before ours and don’t be surprised if they get aggressive to secure long-term contracts while we are in the middle of this storm. Be ready to respond by refreshing your value maps and see where you stand on the maps at different price levels.
  5. Identify areas where you might need to relax pricing rules and guardrails to support customers and distributors in dire support need. Partners remember support in their times of need. Remain flexible and to be ready to relax some of the rules without damaging your level of discipline.
  6. Pay attention to commodity and currency changes, especially when you have formula-based pricing. Start communicating proactively with your impacted customers. Be ready to pass-through increases and decreases based on swings of commodity prices and supply chain disruption. Your suppliers will not hesitate to increase their price sharply. You must pass on to the market along with a healthy dose of communication.
  7. Stay focused on fair pricing. Avoid price gouging and abrupt pricing increases. What comes around goes around. I am a firm believer in keeping your moral compass and staying within ethical pricing levels.
  8. Maintain the discipline in place and communicate actively with the sales force. Engage your sales force and communicate on your analytical findings. Use top sales management to reinforce the need to stay cool and not give in to price concessions. Reinforce key messages on the changes in strategy and tactics.

We did all of this in 2008 during the economic collapse. That was a demand crisis. Today, we are facing a different situation but you can certainly use what you did in 2008 to help today. But you need the proper systems and tools in place. These tools allow you to be faster in finding pockets of price erosion and sudden pattern changes. It might be a good time to make the case for quick investments in a better system to navigate the next 18 months.

Customers are still open for business. This is a temporary situation that may create some short-term stress. But it’s also an opportunity for pricing professionals to shine and build credibility.

For more, download the Vendavo whitepaper 5 Simple Best Practices to Take Back Control of Your Pricing.