According to Trading Economics, “Annual inflation rate in the US unexpectedly accelerated to 8.6% in May of 2022, the highest since December of 1981 and compared to market forecasts of 8.3%.”
If you talk to people, some would say that the prices have NEVER been so high. That’s not the case though – inflation rates in the US have reached an unbelievable 23.70% in the year 1920. Of course, we weren’t here to witness it at the time; but we are here now – pacing back and forth as prices of goods and services go over the roof. It is important to remember, however, that in the middle of difficulty lies opportunity. After all, inflation means your business has been booming! According to https://www.sofi.com/learn/content/main-causes-of-inflation/, inflation is interestingly a byproduct of – you guessed it – a growing economy!
Both history and science show that for every action, there is an equal and opposite reaction. In these inflationary times, while many businesses and entrepreneurs will suffer, many will also thrive. When the world was hit by inflation back in the 70’s and 80’s, store brands, dollar stores and retail stores like Walmart gained tremendous momentum. This was because prior to the inflation, people would simply just make their purchases without thinking too much about the prices; come inflation and buyers were more conscious and desperate for gaining value.
While it can seem like too difficult a challenge, with the right tools, inflation is surely something you can plan around and mitigate.
“Too many B2B companies still work with basic desktop tools such as Excel spreadsheets, which are often unable to provide sufficient transparency into cost drivers at the customer and product levels. Without the right level of granularity, companies are unable to identify where they should act or how to prepare the right arguments for salespeople. The answers to this wake-up call are technology platforms that offer integrated views, more analytical power, and broad, real-time access to prices, costs, and customer data.” – “Inflation Is Forcing B2B CEOs to Rethink Pricing”, Boston Consulting Group.
It seems then that migrating from outdated tools like spreadsheets, and using advanced technology and well-integrated tools like Revenue Lifecycle Management and CPQ solutions, and other similar systems, to improve efficiency and agility as quickly as possible is a key imperative to understanding the supply and cost models, strengthening resilience, enduring competitiveness, and succeeding. This agility allows to respond to inflationary pressures like changing product configurations and bundles, increasing prices, monitoring costs, and shortening the collection cycle. According to Accenture, ““Intelligent” enterprises use integrated, cloud-enabled planning and performance analysis tools to improve how they capture and analyze data.”
servicePath is a low-code/no-code platform that is easy to use by all kinds of users – technical and non-technical – when creating complex product configurations. The impact of low-code/no-code systems is that they allow users to create responsive market offerings to address the changing needs and dynamics of the market without involving IT. The only constant, after all, is change; so the easier it is to use your systems, the better. More importantly, the impact of low-code/no-code infrastructures is that non-technical users don’t have to wait for technical teams to deploy and configure your solutions and thus slow down their ability to evolve and keep up with the market – they can very easily execute key operations.
Businesses all over the globe today are presented with a new kind of dilemma; they are wrestling with rapidly increasing costs that are ultimately passed on to their customers. They may initially be tempted to simply raise prices across the board and supposedly “put a lid on it”. However, this can severely scar customer relationships, decrease sales, and subdue margins. Businesses are dreading losing customers, decreasing profitability, and horrible margins. On the positive side of things though, the soaring inflation that is affecting us today presents an opportunity for businesses to address people’s pain points and establish new partnerships. We won’t be exaggerating if we said that businesses are caught between a rock and a hard place. It is absolutely crucial today that you become a partner to your customers and not just burden them with higher prices. Show them that you care, but don’t forget to protect your margins in the journey.
How do we sustain margins and remain competitive in times like these? There’s no one answer to this; but surely, some businesses have it figured out;
As seen on Accenture, “Despite the outlook, leaders may be better prepared than they realize. The operational changes they made to navigate the COVID-19 pandemic helped their businesses survive and thrive: In fact, our research shows the largest 2,000 companies globally grew by 11% between Q4 of 2019 and Q4 of 2021.
Value generation differed among them, however. The more digitally advanced companies navigated the crisis without compromising profitable growth. From December 2021 to January 2022, 90% of c-suite executives reported that their organizations were undergoing rapid digital transformation.”
We must of course improvise, adapt and overcome. In doing this, various aspects of the business will require re-doing;
You must consider (re)pricing, (re)designing, (re)prioritizing, and (re)planning; a best-of-breed Revenue Lifecycle Management and QTC tool like servicePath CPQ+ can help you execute these.
Re-pricing: Using servicePath’s advanced configuration capabilities when configuring products, it is extremely easy to price each product. Deloitte elaborates the process thoroughly: Your sales team can begin by establishing a base product that is aligned with customer needs—without being overly built-up. A window manufacturer, for example, may start by pricing the simplest version of its product that a customer can buy, accounting for value relative to other products in its catalog and competitive reference. From there, the manufacturer can build a list of additions that increase the value—such as size, material, color, and trim—and create a pricing ladder that accounts for the increase in value for each different configuration of the product.
Re-designing: Companies that are not armed with the ability to rapidly upgrade items frequently depend on category management to reduce costs by adjusting varieties, decreasing SKU complexity, sourcing from selected sellers, and of course, reducing inventory. We see leading organizations recognizing item substitutes within their portfolios, often private-label alternatives that can be sold at a lower cost than branded counterparts while maximizing margins and delivering exceptional value to the customer.
Re-prioritizing: Advanced Revenue Lifecycle Management/CPQ/QTC tools provide full transparency. By being able to tell money-making customers from money-losing customers, companies have a better chance of making good, well-informed decisions, investments, and deals. When we’re able to prioritize products and customers, we’re able to better allocate resources; as well as make appropriate and profitable recommendations.
Re-planning: Advanced Revenue Lifecycle Management tools can help businesses prepare, re-plan and survive in these crucial times. By equipping users with critical tools/capabilities like the ability to carry a cost-to-serve analysis and determining a customer’s actual value to your business, planning your business strategy becomes easy. Your plans prior to inflation may be very different from your plans during inflation. So, considerable re-planning may be required.
Companies that do this well will improve their revenues, margins, and customer loyalty (retention) and will be equipped to respond more effectively to future shocks, inflationary or otherwise.
Some challenges that businesses are facing due to inflation include maintaining margins and rectifying the past pricing “mistakes”; pricing methods/approaches that didn’t seem all that problematic then but are roadblocks now. Businesses’ frontline salespeople are struggling to have deeper conversations with customers about shared business concerns, challenges and opportunities. Another challenge that businesses today are struggling with is failure to coordinated across functions. As McKinsey highlighted in their article “Responding to inflation and volatility: Time for procurement to lead”, “One procurement organization stockpiled steel from various suppliers in anticipation of further price increases. However, because procurement did not coordinate with the supply-chain team, the warehouses were inundated with so much steel that it had to be kept outdoors. After a few weeks, the company was sitting on a pile of rusty steel—and a bleeding balance sheet. To avoid this sort of mistake, companies can build an infrastructure that enables rapid collaboration and execution on many initiatives at once. Monthly business reviews or quarterly supplier workshops are not enough to handle fast-moving prices”. These imperatives to plan for market uncertainty, McKinsey wrote, will likely remain relevant after the current inflationary concerns subside.
Revenue Lifecycle Management and CPQ software like servicePath CPQ+ allow organizations to do proactive demand-based forecasts using accurate sales data to make sure inventories align to needs. The execution of dynamic forecasting, if not automated, is extremely difficult and prone to error. Best-of-breed systems like servicePath CPQ+ provide capabilities required by Technology Service Providers and Managed Service Providers to de-risk, future-proof themselves and achieve their business goals. Automated dynamic forecasting and detailed cost-to-serve analysis capabilities, for example, allow for immediate and accurate forecasting of resources needs and constraints and funding requirements to support the sales opportunities. servicePath’s Quote to Cash platform fuels growth by enabling businesses to quote faster, while incorporating all of the key metrics and variables, with guaranteed accuracy.
There’s another powerful tool that advanced CPQ systems like servicePath provide; Precision Pricing. According to Harvard Business Review, Precision Pricing is thought to have been hand-crafted for erratic times like the present.
Precision pricing empowers administrators to laser-target customers who qualify for possible price increases and to give their sales teams exact cost data to legitimize specific price increases. They can achieve the required price adjustments in a detailed discussion infused with actual data.
Money-losing customers are dealt with differently. For money-losing customers who are not significantly affected by a particular factor cost increase and who cooperate in reducing other operating costs, the sales team can offer to relinquish a general cost increment.
The sales team can similarly engage new accounts that look like prospects for growth with an offer to forego price increases as a trade-off for substantial profitable growth.
Contrast this process with the conventional practice of across-the-board price increases that set up negative relationships for all customers — regardless of a customer’s profitability and product cost profile — and eliminates the chance of using the prospect of foregoing a price increase as a lever to increase customer profitability.
Precision Pricing, in this way, generates profitable development while building goodwill with your customer; changing a zero-sum situation into a win-win.
How can CPQ help? Your customers must already be frustrated and under unimaginable stress because of the rising prices. Having a CRM-integrated CPQ system and regularly and consistently updated pricing will definitely prove a life-saver. While as a customer, there is never really a “good time” for inflation, I think we can all agree that for businesses, this was a bad time for inflation; with the demand surge that resulted from economies reopening for business thanks to the decline in Covid-19 cases. Speaking of which, COVID-19 affected both businesses, as well as buyers in more ways than one. As put by Harvard Business Review, “many business-to-business (B2B) companies granted their customers pricing relief due to the pandemic, meaning they’d already sunk into a pricing hole even without inflation”. It was only bad news for those businesses – adjustments need to be made.
When the prices go up, you need the ability to adjust your price lists and make sure they reflect your costs too. If you don’t update your price list in time, your customers will obviously complain about being misled and you will be exposed to bad and unprofitable deals.
Advanced Revenue Lifecycle Management tools’ capabilities like cost-to-serve analysis allow your team to analyze your customers and the prices of individual products. You will then be in a better place to tune the package to potentially optimize it more and control the overall cost. Another capability that is to be valued in current times is Bundled pricing adjustment. Today, you need to make sure your solution can modify or quickly adapt to new models and solutions that help them address those inflationary times. With changes occurring so fast, agility has become an urgent necessity. Making changes in bundles and products people buy too has to be done quickly.
How does the consumer journey change during inflation?
- Customers probably reduce their spend
- The deals that you have already sold to your customers are adjusted
- The mix of products that you’re selling to your consumers will be very different because they’re being consumed very differently at this time
- The customers have moved from being growth-focused to being more maintenance and sustainability-focused.
Lastly, you want to make sure your team is working with your customers to understand what they need from you so you can adjust accordingly. You want to be working with your customers in the spirit of partnership in these times because when they turn around, they will remember the time when you were very supportive and helpful to them.
It’s critical now that you make arrangements to strengthen your relationships and absolutely understand your costs and margins to make sure you’re driving good revenue and good deals that will sustain your business in difficult times.