For manufacturers, there’s never been a time when demand and pricing seemed so difficult. Some sectors have experienced sharp drops in demand, while others can’t keep up. Heightened price sensitivity and fear of the unknown means more customers are asking for discounts or extended terms.
Companies generally fall into three categories regarding demand, which in turn drives their pricing decisions.
Demand down: Manufacturers—and their suppliers—in many sectors have experienced drastically reduced demand. For example, the demand for textiles, furniture, and apparel has waned. Customers are no longer willing to pay what they were paying, discounts have increased, and for many companies, survival is the main goal. Pricing adjustments in this arena may be futile long-term because the lack of demand is currently so acute.
Demand up: Some companies have experienced explosive demand, such as manufacturers of medical products, cleaning supplies and paper products. As demand has gone up, keeping supply available has been a challenge. Prices have increased, and most manufacturers have handled these price increases respectably. But the few who took advantage of a global emergency have experienced significant blow-back, and even legal trouble.
Demand is moderately affected: Some companies have continued on course. Some have been affected negatively by a general slowdown in spending, but positively as needs have shifted, and working from home has become a norm. Examples include consumer electronics and use-at-home tools. Pricing in these areas has flexed with demand.
Getting It Right
Strengthen messaging. Your sales team must be able to communicate value. If your sales force needs new messaging training, now is the perfect time. Focus on improving listening and negotiating skills, both of which can be used effectively in person and via video calls.
Reinforce trust. If you are able, meet customers where they are, and give them what they need. This might include customizing offerings, revisiting contracts, and determining what is most important to them. Consider loyalty incentives to keep customers close.
Stay flexible. According to McKinsey, “The outperformers in today’s environment will address customers’ short-term pain points without needlessly destroying long-term value.” This might include temporary pricing or volume adjustments.
Rather than locked-in, long-term adjustments, practice flexibility so you can maintain profits when the recovery rolls around. For example, consider one-time promotions, flexible payment terms, or credit for future purchases. These tactics will preserve long-term value but will also assist customers if they are struggling.
Ask your team. A cross-functional internal team can offer unexpected insights into pandemic pricing solutions. They can examine contract terms, service charges, or other details that often get lost as customer relationships age.
Of course, there are “don’ts” as well. For example, manufacturers must stay current. Everything from regulations to tariffs to consumer confidence is changing rapidly. Customers might have specific pricing sensitivity—and that might change, too. Conducting a customer survey can illuminate interesting data points.
Also, it’s wise to act quickly but not impulsively. Slashing prices might be helpful in the short run, but may destroy value long-term. Keep an eye on competitors and how they’re responding. Determine where you want to land relative to their actions—or inaction.
Pricing can be challenging in the best of times, so be careful tackling this tough topic during a once-in-a-century pandemic.
Our team can help you think through your pricing decisions. Contact us to set up a time to talk.
Source: McKinsey & Company