Addressing B2B Pricing Strategy During The COVID-19 Pandemic
We partnered with PROS to share curated content that helps businesses navigate through the COVID-19 Pandemic. Review the Guest Blog commentary below and continue scrolling for PROS-produced video series.
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Guest Blog Post & Video Content By:
Chief Visionary Officer, Craig Zawada
Craig Zawada is responsible for creating the vision for how PROS uses data and technology to help companies drive their business strategy. A widely published author, Zawada is perhaps best well known for co-authoring “The Price Advantage,” which has been recognized as one of the most pragmatic books available on pricing strategy. Prior to joining PROS, he was a partner and leader in the Marketing & Sales Practice at McKinsey & Company.
Solution Strategy Director, Valerie Howard
Valerie Howard, Solution Strategy Director at PROS, manages the go-to-market strategy for the PROS pricing solution portfolio. As a former user and product manager of PROS solutions, she has firsthand experience in the transformative benefits and competitive advantages that can be realized through pricing technology. Valerie earned an MBA from the McCombs School of Business at The University of Texas and a B.S. in Electrical Engineering through a scholarship at the Cooper Union for the Advancement of Science and Art.
We’ve all been personally and professionally affected by the Coronavirus crisis – no matter where you are, it’s impacting how we live, work, and communicate with one another.
What we can offer today is advice for businesses in weathering the economic challenges of the COVID-19 pandemic. In writing this post, we reflected on our own experiences with previous downturns and the pricing actions that supported the businesses we were working with at the time.
While there is a lot to be learned from the slow-downs of the early 2000s and 2008, this particular downturn is unlike any of our past. Because of the social distancing requirements with today’s situation, many businesses have grinded to a halt, most have seen a significant slow-down, and a few have seen an unprecedented surge of demand.
Side Note: While many of us are aware of the surging demand for paper towels, face masks, and sanitizer, there are surprising areas seeing upswings in demand as well: paint businesses and cycling stores. People now spending more time at home realize that it’s finally time to change their wall color. Shutdowns of gyms and public transportation make cycling a favorable choice for exercise and commuting.
These unexpected, sudden shifts in demand remind us that the current downturn’s effect on businesses across the globe is as unique as the products and services each of those businesses offers. Our aim, is to share a few key points of advice that will be relevant to most.
Maintain Price Discipline
Our first recommendation is that businesses up the ante on basic pricing discipline. In previous downturns, we’ve seen businesses panic in reaction to the quick decline in demand. In a misguided attempt to spur demand, they will cut their prices. Unfortunately, in a situation like today’s, we know that this demand is rarely elastic.
For example, restaurant suppliers may be seeing a decline in orders because many dining rooms have been closed for the foreseeable future. Lowering the price simply isn’t going to spur meaningful demand.
What we’ve seen is that there are three likely outcomes to lowering the price with inelastic demand like this: 1) your buyers will simply stock up on these discounted goods and you’ll steal profitability and sales from future purchases2) you may kick off a price war with your competition, and, most importantly, 3) you may lower the price expectations for your goods and services permanently.
Research shows that it’s much more difficult to raise prices, so a panicked price drop may have long-term effects on devaluing your brand.
Another scenario that you’ll want to carefully manage pricing for is those products that are facing shortages in supply. For example, many industries are not able to manufacture their typical product volumes at this time as a result of work stoppages around the world.
The likelihood of reduced supplies is another meaningful reason you’ll want to protect price.
Tune into How Customer Values Have Changed
Once you have a handle on price discipline, it’s time to start tuning in to how your customers may be changing what they value. Allow us to explain with an example. During the Great Recession, carmakers realized that drivers who were fearful of losing their jobs would be less willing to invest in a new car.
So, to manage for protecting their prices while adjusting for these new buyer concerns, the auto industry improved upon financing options with 0% rates and longer terms. The best example of this was Hyundai who directly addressed their customers’ fears and allowed customers to return their cars should they lose their job. These carmakers found that their customers valued these improved finance options so much more than the actual cost of these options – allowing them to protect prices while offering increased value to their customers.
In today’s economy, you might have customers lowering their order volumes or perhaps shifting to smaller package sizes because they’re unsure what the demand from their customers will be. You’ll want to tune in to better understand how product mix is changing in your customer orders and ensure you’re able to adjust incentivized prices appropriately where customers are no longer meeting volume or order size thresholds.
By paying attention to the product mix, the prices, and the volume changes in customer transactions, you’ll likely begin to see trends emerge that can help you assess how customer value has changed. Another important channel for assessing changing customer values is your price exception process.
If you’re seeing an increased number of requests for discounts come in, try to assess what’s driving the request and consider if there are levers besides price that can be adjusted to address the customer’s changing needs.
Lean into the Digital Shift
Given that many countries have implemented “stay-at-home” orders, we are seeing a lot of traditional sales transactions move to eCommerce channels. On a call with McKinsey alumni just a couple of weeks ago, colleagues shared that they were seeing an 80% surge in eCommerce orders in Italy during the the outbreak – across consumer and B2B.
Our research has shown that businesses anticipate shifting a majority of sales to digital channels, but many businesses have been slow to fully enable self-serve experiences for their customers. As of 2018, only 20% were selling primarily through eCommerce, though 62% anticipated selling a majority of their goods through eCommerce by 2023.
Many businesses have been slow to shift sales to eCommerce channels because they have been slow to offer market-relevant pricing through their digital channels. In an attempt to protect prices, they’ve preferred showcasing a retail or list price on their eCommerce channels and encouraging the traditional process of back and forth negotiation, believing that this will help them to come out ahead and stem price erosion.
Given the extreme price variation we often see in businesses that take this approach, we believe this approach has a rather limited success rate in protecting prices and profitability.
What we’ve seen – and what the research has shown – is that most buyers are actually willing to pay 1-5% more for an easy, self-serve buying experience with instant pricing information.
Given that eCommerce sales are more cost-efficient and can potentially help your business to reach a broader audience, reducing the administrative requirements of each sale by providing realistic pricing is a necessity for businesses that intend to stay relevant in this new economy.
Making this shift now will enable many businesses who relied heavily on traditional sales processes to better support their customers through virtual interactions in the short term. Improved self-serve experiences for their buyers will help businesses in the short and long term, as we expect that buying habits will be forever changed by today’s crisis.
While there are many unknowns concerning the COVID-19 crisis and the economy continues to face a great deal of uncertainty, enabling your business to adjust will help you to stay in tune with your customers and relevant to their needs.
Should you seek more advice or are interested in sharing your unique situation, please reach out to the PROS Team HERE.
Are you ready to dive into these topics further and earn a credit towards your CPP (Certified Pricing Professional Designation) PROS in partnership with The Professional Pricing Society, is leading the Online Pricing Course “Managing Pricing Effectively through Market Volatility”. We’d love see you in class!
Watch the three-part video series featuring more of Craig Zawada and Valerie Howard from PROS where more insight about handling the turbulent times within the industry.
1. EXPERT ADVICE FOR THE COVID-19 OUTBREAK
2. Responsible, Agile Pricing For The Coronavirus Crisis
3. The Accelerated Shift To Digital Channels During COVID-19
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