Overcoming pricing complexity in manufacturing with technology

Assigning a price to a particular product is one of the most deceptively challenging decisions facing manufacturers seeking profitability and competitiveness. In today’s business environment, companies need to be able to react to changes in market inputs and get optimized pricing into the hands of sales, partners, and customers.

However, many companies—even multibillion-dollar operations—still tackle that challenge with product and pricing data in Excel, homegrown tools, and a lack of defined processes and systems.

Doing pricing right means managing it as a full, complete, dynamic process—something that manual systems, spreadsheets, and most Configure Price Quotes aren’t up to accomplishing. It’s time for manufacturers to move pricing from an underestimated and misrepresented portion of CPQ into the forefront of the business.

For example, consider the question: How much should an office chair cost? The answer is not as simple as it appears. First, there’s the configuration challenge, with literally millions of possible combinations—arms, backrest, extra support, adjustability, colors—some of which have never been sold before and may never sell again.

Solving that configuration challenge leads to a host of other, more important questions: What’s the product's value? Is the list price market-relevant? Is that the price to offer strategic accounts or direct customers? How are we tracking the costs over time? How can we maintain our margins as costs change

Finding answers to those questions has resulted in a rough few years for the manufacturing sector. The latest Manufacturers’ Outlook Survey from the National Association of Manufacturers showed that small and medium-size companies (which make up a vast majority of the sector) continued to have historically lower levels of optimism, with 65.9% and 63% positivity rates in the fourth quarter, respectively.

Over the past two years, manufacturers have struggled to stay ahead of how underlying cost changes affect their pricing. The NAM survey showed the expected growth rate for raw materials prices and other input costs rising faster than the growth rate for the prices of a company’s products (1.8% vs 1.3%). The challenge of increasing prices quickly to remain competitive or easing them while maintaining a healthy margin calls for a more dynamic and automated approach.

Technology platforms are transforming how companies are managing this pricing complexity efficiently. AI and data science can ingest all the variables and provide guidance tailored to specific situations. This takes the burden off individual sales reps or pricing analysts to hold all the data in their heads. Platforms can automate updating prices when costs fluctuate, avoiding laborious manual work.

APIs and integrations allow these pricing engines to connect seamlessly with sales tools like CPQ and ERP systems. There are four fundamental levels where technology can have an impact:

Setting list prices based on product value, competition, and positioning. AI models can synthesize vast amounts of data to determine optimal list pricing.
Aligning pricing to specific markets and microsegments. The platform can dynamically set prices tailored to customer type, industry, willingness to pay, and other granular variables.
Optimizing pricing for strategic accounts with custom deals. Guidelines customized for key customers help sales reps maximize deal value.
Real-time analytics for pricing performance, compliance, and market share can help deliver pricing through the CPQ system that is competitive and relevant to the market.

Incorporating advanced technology must be accompanied by a high degree of trust. For many companies, the pricing process stirs up strong feelings. Prices can reflect how a company represents itself in the marketplace. Are the products premium or entry-level? How do they compare to competitors?

The sales reps who spend their day quoting and pricing feel a lag in providing good customer experiences when pricing approvals have to be delivered through complex spreadsheets. By giving them the power to manage the entire pricing lifecycle, they can get instant feedback and serve customers better.

They gain trust when the system-guided prices help them close more deals at better margins. IT and business leaders appreciate automating pricing tasks to focus their teams on value-added strategy.

Driving user adoption requires change management and inclusion. Engage pricing analysts to help design optimal workflows based on their expertise. Make sales reps active partners in configuring the solution for their needs. Proactively communicate how technology will make their jobs easier rather than simply dictating a new solution. When stakeholders feel heard and see benefits, they will champion the transformation.

Manufacturers can achieve consistent pricing across regions, channels, and products with pricing software seamlessly integrated into sales platforms. They can respond quickly when markets or costs fluctuate. And sales reps have the pricing insights they need to negotiate optimal deals.

This agility and automation allow manufacturers to maximize margins while remaining competitive. Technology platforms exist to help manufacturers finally tame pricing complexity if adopted strategically.