FAQ’s From “How Manufacturers Can Raise Prices Without Risking Volume”
December 11, 2014, I hosted a webinar with Manufacturing.net. The webinar, “How Manufacturers Can Raise Prices Without Risking Volume: A 4-Step Process to Drive 20% Profit Gains,” focused on how manufacturers can employ strategic pricing to grow their profitability using our four recommended steps. There were a number of excellent questions asked during the Q&A section, and they’re included below, along with my original answers.
Q: How long does a 4-step program like this take?
A: That’s a good question, and obviously it varies. But typically, we want to build momentum with an organization so we don’t have a target opportunity that’s longer than four or five months out.
What we would do is break it down into phases. If you’re in your pricing life-cycle you might have many of these phases left. If you’ve done this for a number of years, you might only have one or two. The concept is, over the course of two years you want to have three- to four-month measurable, impactful goals that have clear objectives. So every three or four months, have a goal of a certain amount of lift, measure it for a while and then move on to the next phase.
Q: Are there types of businesses these concepts are more applicable to?
A: Yes. What we’ve found is that it’s kind of a common framework. Some businesses might have more opportunity in waterfall, some might have more opportunity in price realization. But all businesses have these opportunities. It’s just to what magnitude.
What we’re looking for is businesses that have a lot of complexity or have a lot of market change; prices that go up and down a lot and have a lot of spread. If you see yourself having a lot of variation in price and a lot of price changes, you’re probably at the higher end of this opportunity scale.
Q: What technology or tools are needed to achieve these benefits?
A: A lot of the time, what we suggest is “walk before you run.” The concept is, let’s go and start having successes that might be simple to start with. Day 1 might be databases or Excel spreadsheets. But within a number of months, to maintain these goals, to have continuous improvement, it makes sense to invest in tools or technology.
The trouble is that some of the tools and technology out there are quite complex. And you end up spending all your time implementing complex tools that are kind of like a black box. What we suggest is really focusing on technology that is about implementation and visibility and adding more modules or more capabilities over time, rather than trying to do everything at once.
Q: How much of your solution is consulting versus software?
A: It depends on the business. Most businesses are a blend of both. Some businesses are much more advanced in their journey, and therefore it’s time to go down the technology route further. But all businesses need to bring best practices in from the outside and help with change management. With our solution, the real focus is the change management coupled with the technology.
Q: What are the biggest drivers of success for this type of program?
A: The companies that are the most successful with this are the ones that try not to bite off too much at a time and also have strong leadership. Either you have executives that buy-in or you can show them wins to then champion in front of the organization—that is key. Then, finally, the businesses that really truly engage the sales force and get them involved have, by far, the most success.
Q: Of the topics that were presented during the webinar, where do you typically see the most opportunity as well as the most resistance?
A: Price realization and how much you get from that is probably the largest dollar area. The low-hanging fruit, though, is often these outliers and waterfalls because they’re normally not transparent to the marketplace. People don’t even notice those changes. But the area we get the most resistance is engaging the salesforce. Most people feel like they’ve given up, that they tried that before. The goal is, let’s take a new approach and we will get them on board, and over time we’ll build momentum with them.
Q: Do you have software and/or consulting services where you don’t have to buy the software?
A: Yes. We always use technology to deliver the benefits because of the amount of analysis and the amount of work and the visualization tools that you’re seeing here, but some of our clients choose to build those tools in their business intelligence warehouses or other places. That’s their option. We offer both the whole spectrum of whatever services they like anywhere from consulting and advisory all the way to technology.
Q: What are the biggest impediments to introducing such an approach?
A: Normally, the first reaction is that we do this already, or the market dictates our pricing terms. What we don’t want to do is go in and radically change things early on. What we want to do is pick areas that are lower sensitivity, that make sense, like charging people what they’re supposed to be charged, or just simply building the scatter charts we talked about earlier.
Q: What is a typical ROI in the first 12 months?
A: A conservative ROI should be, as a percentage, 300 to 400 percent. You should be getting a return on investment within four or five months. You’re going to better than breakeven, and at the end of the year you should be 2, 3, 4, 5X your initial investment. What happens then is it actually (usually) improves further past that. Phase 2 and Phase 3 of doing this cycle of improvement it gets more efficient, the tools get more refined, the organization gets more aligned as reps change management and can move even faster in Year 2 and Year 3.
If these questions piqued your interest, contact us for more.