Leveraging the price waterfall against the industry average
In the competitive landscape of the business world, companies are constantly seeking ways to gain a competitive edge. One effective strategy is to leverage the price waterfall against industry averages. By understanding and manipulating the various components of the price waterfall, businesses can position themselves strategically and achieve a sustainable advantage over their peers.
By analyzing the price waterfall components and comparing them to industry averages, you can identify areas where they can make strategic adjustments to gain a competitive advantage. This is where Plasma comes into play, as it combines a massive amount of anonymized and aggregated transaction and quoting data into 20+ pricing performance benchmarks, delivered in intuitive visual outputs. You will clearly see where you are not performing at the best you could.
In this scenario, the specific aspect of the price waterfall that holds significant potential for our example company is freight charges. Shipping costs play a crucial role in determining the final price of a product, especially for businesses involved in the transportation of goods. By undercharging freight by -10% against their peers, the company can offer a more competitive price to customers, potentially attracting more business and increasing market share.
However, undercharging freight by -10% should be a carefully calculated decision. While it may seem like a straightforward strategy to gain a competitive advantage, you must consider the potential impacts it may have on profitability and long-term sustainability. Undercharging freight can lead to reduced profit margins, especially if the costs of transportation remain constant or increase over time. It is crucial to evaluate the financial implications and ensure that the overall profitability of the business is not compromised.
By understanding the dynamics of the price waterfall and making strategic adjustments, you can position your business strategically and thrive in a competitive market.
There are a few points to consider, in order to leverage the prices.
Are you using the right metrics to calculate the costs?
Is the promoted freight used as an additional discount mechanism?
Are the sales incentives misaligned with the price waterfall components?
After considering these points along with the calculations provided in Plasma, you can adjust your strategies and realize that you can close the 400 bps industry gap by addressing the unreimbursed freight.
Benchmarking deal velocity and approval steps vs. industry average
The next business scenario we are looking at deal with a company’s deal approval process. In this case, the approval process is slower and more complex than the industry average. This cumbersome process not only causes profit erosion but also incurs hidden costs that affect sales productivity and add unnecessary overhead.
One significant consequence of a slow deal approval process is the loss of potential contracts due to delayed bids. In a competitive market, customers have limited patience and often require prompt responses to their inquiries. When approval processes lag behind the industry average, it leads to missed opportunities as potential customers seek quicker responses from competitors. This profit erosion can have long-lasting effects, impacting the company's revenue and market share.
Moreover, an ineffective deal approval process incurs hidden costs that are often overlooked. Firstly, the lower sales productivity resulting from delays in the approval process directly affects the company's bottom line. Sales teams spend valuable time waiting for approvals instead of focusing on revenue-generating activities. This inefficiency not only hampers sales performance but also demotivates employees, leading to decreased morale and potential turnover.
Additionally, the cumbersome nature of deal approval processes requires the involvement of multiple managers and stakeholders, resulting in unnecessary overhead costs.
With Plasma, you can see how much longer your processes take compared to the industry average and you can make informed changes to optimize them to better reflect your targets and increase profitability.
To shorten the time between quote submission and approval by 50% in order to meet the industry average, there are a few key questions you must ask.
•What steps are crucial to your review process?
•Is your discount review threshold too strict?
•How can you automate your approval workflow?
The only way in which you can gain insights on these points is by primarily knowing where you rank in your industry. Plasma will help you get this insight to allow you to make better decisions and leverage your processes.
Ineffective Price Uplift for Customers
Businesses often face the challenge of managing price increases in response to rising costs or market fluctuations so it is essential that you can effectively pass through price increases to your customers. if you are unable to communicate and implement price adjustments, it can have detrimental effects on the company's profitability and competitiveness.
One consequence of not effectively passing through price increases is a direct impact on the company's profitability. If costs rise but prices remain stagnant, profit margins shrink, leading to reduced financial performance.
Furthermore, failing to implement price increases can create a perception of low value in the market. Customers may associate unchanged prices with stagnant or inferior products or services. This can erode trust and loyalty, potentially driving customers towards competitors who have effectively communicated and justified their price adjustments.
To address these challenges, the company in our scenario needs to reassess its pricing strategy and develop effective communication channels with its customers. This would be improving the company’s yield from price increases will drive +% in revenue.
Transparent and timely communication is crucial to help customers understand the reasons behind price increases and the value they will receive in return. This requires proactive efforts to educate and support sales teams from certain regions, equipping them with the knowledge and skills to effectively convey the value proposition to customers.
Knowing how you position against peers in your industry, brings up other aspects that should be considered to tackle this issue:
•Potentially setting more aggressive margin realization targets
•Clear distinctions between products where price increases work and where they do not, for whatever reason
•Whether governance and tracking is rigorous enough to ensure follow through with key customer account teams
Moreover, the implementation of pricing technology and data analytics, as Pricefx Plasma, can support the pricing process, enabling you to analyze market trends, competitor pricing strategies, and customer behavior. This data-driven approach empowers you to make informed pricing decisions and adjust prices accordingly, justify them, maintain profitability, and foster stronger customer relationships in the competitive marketplace.