Mid-market ($10M to $1B in annual revenue) B2B manufacturers (MMB2B) are typically more capital constrained than industry leaders and less able to invest in technology and innovation as needed to improve profit. It is the capital constraints of mid-market manufacturers that require them to prioritize and establish metrics of ROI and success to determine how to best allocate capital to maximize stakeholder and shareholder value.
A firm (i.e., corporation) and its officers are tasked with balancing both short-term profit and long-term performance. With increasingly complex supply chains, pandemics, heightened global competition, labor shortages, significant increases in materials cost and material shortages, decisions to maximize value in the short term may undermine the sustainability of a company and its long-term value. Regardless of the time horizon or the nature of a strategy, pricing is one of the most impactful levers companies possess to impact both the immediate and long-term financial health of the firm.
Leverage Pricing for More Growth and Profitability
Price can help capture market share or set off a war with no possible positive outcome for a firm. Price can maximize short-term profit but erode renewable revenue. Price can change customer’s perceptions of products from high to low quality or cheap to luxury without any actual changes to an offering. Price can ensure that as supply costs are increasing, margins are decreasing, or it can ensure that increasing costs are shared across a supply chain. Price can be leveraged to provide profit that enables firms to fund initiatives focused on increasing stakeholder value, as well as shareholders. Some examples: achieving carbon neutrality, implementing a sustainable material sourcing policy or providing health care benefits for all employees.
Regardless of the strategy, a firm’s pricing policy is integral to ensuring that firms are not biting off their nose to spite their face. Despite this as a truth, most firms do not have a governed, consistent pricing strategy and have not yet positioned or established pricing as a strategic competence worthy of technology investment.
Automate Activities of Selling to Impact Profit
Every sector of business today is facing increasing complexity, with macroeconomic and geopolitical uncertainty adding fuel to fire. Beyond increasing materials costs, inflation and tariffs is simply the challenge of selling more things to more customers in more ways and more places, and our customers were using data and technology to drive down prices. At most manufacturers, pricing was or still is a set-it-and-forget-it process that ultimately ended up being controlled by and determined by the sales organization, which was told to just grow revenue and not be trusted with minding profit.
“The definition of insanity is doing the same thing over and over again and expecting a different result.” — Albert Einstein
Although technological disruption continues to impact every aspect of the B2B manufacturing supply chain, resulting in continuously more efficient production and distribution, how we sell has not really changed that much. All we have done is map and automate the activities of selling; we haven’t changed the way we establish the value of products and services with customers and come to an agreement to do business. It doesn’t matter how well your supply chain is managed if price is the only lever that your sales team pulls on to compete. And we cannot expect pricing execution that is more strategic if sales teams are not provided with intelligence and context to establish greater perceived value and affect a customer’s willingness to pay. Without empowerment of and collaboration with sales teams by the business, the same outcome will always occur: price discounts or matching as a means of winning business, price erosion on your highest demand products, trouble maintaining profit margins, and competitors that meet you where you are and go head-to-head on price time and time again.
MMB2B manufacturers have an opportunity to transform pricing into a competitive advantage with data science and AI (artificial intelligence). The myopic focus on cost management to maximize profit is not a formula for growth or expansion for a firm in today’s dynamic market. Pricing is the most impactful revenue lever with which to impact profit—better than cost reductions or increases in volume of sales.
It is essential for sellers to invest in pricing and sales technologies that help them manage profit and transform pricing into a competitive advantage or they will be left at the whim of an increasingly volatile and uncertain marketplace.