Three Ways ANZ Companies Can Achieve Resiliency through their Pricing Strategies

In the current uncertain, volatile market conditions brought on by the global COVID-19 outbreak it’s important for companies in Australia and New Zealand to maintain discipline in their pricing strategies.

According to the IBISWorld COVID-19 Special Report, ‘The outbreak is anticipated to have a negative impact on the Australian and New Zealand economies, potentially leading to the lowest GDP growth in Australia since 1991-92’.

While the impact on specific industries is forecast to differ depending on exposure to exports and imports, and the effects of business confidence and consumer sentiment, it’s clear that both B2B and B2C organisations across the board will be experiencing significant shifts in supply, demand, and how customers transact with them.

Many industry sectors in Australia and New Zealand are at risk from crisis exposure between the next three to six months. Industrial, auto/heavy equipment parts, oil and gas, and retail are expected to be the hardest-hit.

Achieving resiliency through today’s market volatility requires businesses to act nimbly and responsively to changing customers’ needs. This may mean adjusting offers and service levels at the customer level or rethinking their the entirety of their commercial model – or both.

Adapting to Customers’ Shifting Needs Requires Agile Price Strategies

The COVID-19 crisis is undoubtedly accelerating many organisations’ shift to digital. While IBISWorld reports an overall drop in consumer sentiment, social distancing and lockdowns mean that transactions that do occur (B2B and B2C) are increasingly conducted online.

In this digital environment, delivering the right price, every time, is critical. Yet most B2B companies have maintained list pricing as part of their core product pricing strategy, which falls short of delivering the right price in the eCommerce world. 

Why? Because costs are fluctuating at a higher rate than ever before. The Australian economy is already dealing with fluctuations in the global prices of commodities such as oil, natural gas, and iron ore as a result of the COVID-19 fallout, according to IBISWorld. Businesses that are reliant on commodity suppliers need to be able to adjust their prices quickly in consideration of these fast-changing costs. If commodity prices increase, they’ll lose margin; if they decrease quickly, they may lose market share to those competitors who are more agile with their pricing.

Compounding this, as economic uncertainty grows and confidence declines, fewer buyers are willing to get locked into the terms of a three-year contract, or all-you-can-eat licenses. The preference is to reduce the risk of the purchase by leveraging subscriptions (pay as you go) to achieve better alignment to what the buyer ultimately values. Traditional list pricing practices of biannual and even quarterly mass price updates are simply not frequent enough; these prices are out of date the day after publishing.

In addition, high non-negotiated list prices can curtail market share growth of new customers and business. Sometimes businesses are hesitant to put realistic prices on their websites because they don’t have the capability to manage and oversee this pricing on a daily business. There’s also the concern that trying to match competitor prices through digital channels may spark profit-eroding price wars. Instead, businesses put a “list price” on their website and hope that buyers will call to negotiate for the realistic price. This obviously defeats the purpose of the digital channel. However, research presented in PROS B2B Digital Commerce: Understanding Customer Expectations Whitepaper shows that an instant price adds value to the customer experience that buyers are willing to pay for, i.e. they’ll pay more if the transaction is fast and easy.

So, how can B2B companies in Australia and New Zealand leverage a smart dynamic pricing strategy to safeguard their viability through this crisis?

In order to stay ahead, PROS argues that companies will need to move away from list pricing and adopt different product pricing strategies. 

Build Market Resilience with Tailored Pricing

As organisations are compelled accelerate their transition into the digital marketplace, having the ability to create more tailored pricing will help them maintain relevance as they weather changes in supply, demand, and what their customers value.

This can be done by implementing a dynamic pricing strategy which accounts for the following three key inputs:

1. Value to Buyer: Use a price optimisation algorithm to ensure each price reflects the customer value perceptions of each unique buying engagement.

• Artificial intelligence and analysis of historical purchase patterns can cluster similar transactions together based upon the attributes that drive variation in willingness to pay.
• Leveraging machine learning algorithms to predict buyer willingness-to-pay based upon historical purchase patterns, businesses can confidently deliver market relevant pricing tailored to the unique conditions of every transaction.
• With price optimisation, businesses can ensure prices are continuously in tune with market trends and competitive landscapes.
• Using this method, businesses can easily identify and prioritize opportunities for pricing correction where they have historically under-priced and recover revenue leakage.

2. Competitive Landscape: Leverage rules and automated price calculation to ensure you maintain competitive pricing.

• While competitive data is easier to attain due to eCommerce web scraping, you’ll need to ensure you have a system to identify unreliable prices. These prices may be misrepresenting the actual prices due to hidden rebates or customer contract requirements.
• With effective price management and analysis, businesses can identify the relevant competitive peers and design pricing rules that allow them to stay within rational range of a customer’s potential alternatives.
• It’s important to note that businesses with a superior product or experience (superior in the perception of the customer, of course) should ensure that competitive price differential is maintained in their pricing. There are rarely winners in price war situations.

3. Profitability: Ensure you have visibility into profitability across aggregate and granular levels to support fast decision-making and trade off analysis.

• Oftentimes, pricing updates and pricing exception reviews take weeks or months because the information required to understand profitability is siloed across multiple data sources.
• Many businesses rely on the price waterfall to gain perspective on profitability from a global level to a product level to a transaction level.
• Organizations that have centralized visibility into pricing and profitability can quickly access the necessary information to make important business decisions like strategic regional price updates or negotiation options for a single deal.

Establish Processes to Measure and Learn

The impact of COVID-19 on the Australian and New Zealand business landscape is still in its infancy, and recovery is forecast to move at different speeds across the various business sectors. Looking at the global level, data from the PROS B2B Industry Segment Report (March 2020) suggests that the hardest-hit sectors – including air and travel, insurance, oil and gas, automotive, and apparel – may not see a restart until 2021.

Given this outlook, the long-term success of any dynamic pricing strategy requires an iterative process to measure, learn and adjust. For example, there are going to be situations where competition is undercutting your revenue and profitability. Monitoring abandoned carts, the ongoing volatility of market trends, and relationships are important to ensure that you are relaxing or tightening your rules on a periodic basis. This iterative approach will help your business stay closely aligned with the changing needs of buyers and what they value.  

What is the Smartest Price Strategy for You?

While some businesses have been forced to accelerate their shift to digital selling and virtual client engagements during these unprecedented times, many other businesses are grinding to a halt. But, there are also opportunities emerging for companies to ensure their resilience through these challenging times by establishing successful product pricing strategies. For organisations feeling the stress of COVID-19, a disciplined approach to pricing can be a key factor in maintaining resilience and viability in the face of unavoidable market forces.

Learn more about how businesses are addressing customers’ expectations for digital purchasing with personalisation and dynamic pricing in PROS B2B Digital Commerce: Understanding Customer Expectations Whitepaper.