1、 2023 Boston Consulting Group1Many B2B businesses have reacted to persistent high inflation by raising prices,adjusting theirpackaging and portfolios,improving analytics,and accelerating their decision-making with tighterpricing governance.But in 2023,uncertainty around demand patterns and cost tren
2、ds will test thelimits of such reactive pricing moves.As price increases face customer resistance and reach their practical limits,companies will need to findother ways to manage uncertainties and keep their revenues,volume,and margins in balance.Theywill need to move away from reactive pricing and
3、prepare themselves for what we call resilient pricing.Resilient Pricing for an Uncertain WorldMAY 17,2023 By David Langkamp,Matt Beckett,Camille Brg,Sachin Shirwalkar,Arnab Sinha,and Jean-ManuelIzaretREADING TIME:12 MIN 2023 Boston Consulting Group2Resilience is a companys capacity to absorb the str
4、esses caused by disruptionssuch as inflation,theCOVID pandemic,and supply chain volatilityand then recover critical functionality and ultimatelythrive in altered circumstances.Resilient pricing entails more targeted actions that can help companies address and removeconstraints,meet internal challeng
5、es,and explore opportunities to grow amidst uncertainty ratherthan merely survive or play defense.It not only expands a companys range of options,but alsoestablishes the processes and technology infrastructure that enable companies to treat uncertainty asan opportunity which warrants a balance of of
6、fensive and defensive strategies.Implementing resilient pricing will be more of a transition for some companies than an abrupt shi.While most companies have reacted to inflation with tried-and-true tactics,primarily with priceincreases,some of the most successful companies have begun to adopt practi
7、ces that will lay a solidfoundation for resilient pricing.Nonetheless,the majority of companies we analyzed in our recent survey still lack a clear plan formanaging future volatility.Only 40%have defined plans for holistic,structural pricing actions needed toaddress the key challenges they face in i
8、mproving their sales and pricing capabilities.The Aermath of Reactive PricingIn our recent survey of around 1,400 pricing decision-makers across 10 sectors,over 70%ofrespondents reported experiencing annual inflation rates in excess of 8%in the preceding 6 to 12months.For each of the sectors and geo
9、graphies,we sorted companies by the margin increases theyachieved and compared the top 20%to the bottom 50%to understand what made those best-in-classcompanies successful.Resilience is a companys capacity to absorb stresses caused by disruptions and thenrecover critical functionalityand ultimately t
10、hrivein altered circumstances.The outperformers were twice as likely than their peers to have passed through price increases largerthan their cost increases,and twice as likely to have captured 90%or more of their planned priceincreases.They also enjoyed additional benefits beyond narrow price imple
11、mentation.The 2023 Boston Consulting Group3outperformers were 60%more likely to have customers increase their basket sizes,and likewise were60%more likely to have greater customer trust that they were doing the right things.Their priceincreases succeeded because these companies did the following:Yet
12、 no matter how successful some companies have been with reactive pricing,most have neglected orunderinvested in other approaches that will provide the basis for resilient pricing:the tools andcapabilities that will give them the medium-and long-term flexibility to anticipate future uncertaintyand ca
13、pitalize on it.An overemphasis on tried-and-true short-term measures(see green text in Exhibit1)despite their positive impactand a lack of emphasis on pricing resources(blue text in Exhibit 1)may leave companies at greater risk in times of uncertainty,because the impact of short-termmeasures diminis
14、hes over time and with repeated use.Acted quickly.Outperformers have the right systems,processes,and people in place to be nimbleand react quickly to cost changes or competitor moves.On average,they were 40%more likely tohave performed more pricing rounds in the preceding 12 months compared to their
15、 peers andwere 20%more likely to have responded to a cost increase within a month.Best-in-classcompanies built forward-looking margin and cost tools that enabled them to link procurementinsights more closely with commercial actions.This reduced the time lag between input costchanges and updates to t
16、heir own pricing.Gained a deep,clear understanding of their customers economics.Investments in datacollection helped these companies understand not only their customers needs and expectations,but also the challenges they face.Best-in-class companies have an in-depth understanding of theircustomers a
17、bility and negotiating leverage to pass along cost increases and realize value furtherup the value chain.They were 2.1 times more likely to have a clear understanding of the financialsof their customers and their customers customers.This helped some companies adjust priceincreases in terms of timing
18、 and magnitude and also make selective proactive price changes.Communicated better.The successful companies in our survey emphasized value more thancost when they explained the rationale for price increases to their customers.They were 55%morelikely to claim that price increases were necessary to pr
19、ovide or ensure better product quality,improve service levels,or switch to more sustainable products.They also expanded the scope ofpricing discussions to include opportunities for partnerships and optimal risk sharing.This type ofcommunication translated to increased trust.The best-in-class compani
20、es were 15%more likely tohave their price increases perceived as fair.2023 Boston Consulting Group4Resilient pricing,in contrast,will depend on companies use of a wider range of measures and greaterinvestments in pricing resources.These include measures in orange text in Exhibit 1,and especiallyincr
21、eased investments in pricing tools and resources(blue text).The Need for Resilient PricingSome 70%of the respondents in our survey felt that some form of uncertaintyinflation,recession,market volatilitywill continue in the medium term,and 63%are concerned about lower growth inprofits and volume.More
22、 than 65%of companies expect near-term inflation levels to remainchallenging,which reinforces the widespread pessimism.(See Exhibit 2.)2023 Boston Consulting Group5Over three quarters of respondents therefore said they expect to take additional measures to balancevolume and profitability.But they ma
23、y find their leeway and upside far more limited than a year ago.Astrong performance over the last year does not necessarily mean that the same actions will succeednow,because there are practical limits to the simpler table stakes moves such as list price increases.At the same time,companies see othe
24、r factors that will impose constraints on their latitude for pricingresponses.They cannot overcome the challenges and complexity of todays sales environment withsimilar price increases based on inflation arguments.Companies now need to build the confidence ofsales teams by providing them not only wi
25、th more coaching and support,but also with stronger sellingarguments that blend procurement insights and value stories.Relying too much on a“cost inflation”argument could boomerang if certain input costs(e.g.,energy in Europe)go down from their peaks.Many companies will also need to re-evaluate exis
26、ting contracts and make tough decisions on whichones to renegotiate and which to drop to preserve margins.Finally,too many companies lack rapidand granular visibility into their forward-looking costs.This will warrant a redesign of cumbersomeinternal processes as well as investments that enhance cap
27、abilities to monitor cost changes in a timelymanner.Our survey showed that in 2022 only 11%of organizations invested in pricing capabilitiessuch as analytical tools,quoting tools,dashboards,and trainingsin part because they perceive“easy”short-term solutions to have a more rapid payback.One misconce
28、ption is that this wouldinvolve a large investment with time-consuming implementation.Business leaders actually have alarge viable range of beneficial approaches to support planning and decision-makingfrom smallincremental investments in new or upgraded pricing tools to comprehensive programs that i
29、nclude AIand machine learning capabilities.2023 Boston Consulting Group6Implementing Resilient PricingWe recommend that companies undertake a range of actions to make themselves future-ready.Thatmeans implementing a much broader range of the measures shown in Exhibit 1,rather thanoveremphasizing rea
30、ctive measures such as price increases.The shorter-term approaches(orange text)focus on more targeted and differentiated pricing actions and on an improved strategy forpartnerships and contracting.The medium-term actions(blue text)involve more intensive monitoring,enhanced training,and deeper deploy
31、ment of advanced analytics and AI.Resilient pricing means B2B companies focus on improving their ability and agility to do the following:Sense shis in demand earlier.Companies can anticipate demand shis and respond to them quickly by tracking market movements,price changes,and changes in their own v
32、olumes.Many shis occur at a sub-segment level and mayremain undetected unless the company is tracking sales and root causes at a much more granularlevel.This market-sensing feeds into a regular and structured cadence to review a previous periodsperformance and plan future pricing moves.This also goe
33、s hand-in-hand with sharper price differentiation,rather than blanket price changes.Companies can“de-average”their prices by making selective price changes differentiated by customersegments or product categories,e.g.,hero products vs.long-tail products.These price changes helpcapture different leve
34、ls of willingness to pay that reflect competition,availability of substitutes acrossproducts,customer switching costs,and other factors.Improve partnership and contracting.Companies can also balance volume and profitability by seeking ways to share the burdens andrewards of market volatility with th
35、eir customers,with a view toward building long-term relationshipsinstead of implementing a series of short-term actions.Table stakes involve having an easy-to-usecontract database to give decision-makers a holistic view of terms,conditions,special considerations,and expiration dates.This will help c
36、ompanies refine their negotiation guidelines,set balanced targetsfor volume and profitability,and when feasible,design contracts to include provisions(hardshipclauses,price revision terms)that share risks.Move toward dynamic pricing.Changing prices dynamically doesnt require that a B2B company take
37、years to implement black boxesand gather the immense pools of real-time data that airlines,logistics firms,and hotels rely on.ManyB2B players face different challenges,because they sell complex solutions to a fragmented marketlandscape with varying sales cycles.In its simplest form,dynamic pricing i
38、n B2B markets is the abilityto trigger an automatic pricing review if any input factors changeand then to support targeted 2023 Boston Consulting Group7pricing decisions,derived with confidence from the right mix of human judgment and technology.(SeeExhibit 3.)An example of this is identifying low-s
39、tock items and quickly limiting discretionary discounts for them.This is a lower bar in terms of investment,but still enables the company to respond at the pace ofchange in its market.De-escalate price war risks.Price wars can easily turn into wars of attrition in which everyone loses.Economic uncer
40、tainty or crisisheightens the risk.Companies can reduce the risks of a price waror mitigate the effectsbysimulating the immediate and medium-term implications of pricing actions,either ones own or thoseof competitors.Focus on value communication rather than a direct price-vs-price comparison in them
41、arket.This leads to our next recommendation.Change the pricing game.Times of uncertainty are opportunities for companies to go on offense.This means exploringinnovative monetization strategies,including outcome-based pricing and recurring monetizationmodels versus one-off transactional approaches.Th
42、ese models can become points of differentiation intimes when many customers are more cautious about investment.Such models allow companies toalign value in ways that conventional models,such as per-unit pricing and time and materials forservice,oen cannotand thus can help build a lasting competitive
43、 advantage for the rebound.2023 Boston Consulting Group8The longer market uncertainty endures,the stronger the case becomes for companies to stopemphasizing reactive pricing decisions and start practicing resilient pricing.This will requireestablishing and nurturing the medium-and long-term capabili
44、ties and flexibility to anticipate futureuncertainty and capitalize on it.The basic adjustments include pricing process optimization and betteruse of existing data and analyses.Enhanced resilience comes from viewing pricing as an ongoing,longer-term strategic challenge and using advanced analytical
45、capabilities to expand their range ofproactive and reactive pricing options.About the Survey In September 2022,BCG surveyed over 1,400 pricing decision-makers in 10 sectors(automotive,building materials,chemicals,consumer packaged goods,fashion and luxury,machinery andindustrial automation,medical t
46、echnologies,restaurants,retail technology,and soware)and fourregions(North America,Europe,India,and China).The survey asked questions about recent companyperformance to understand which strategies are proving successful in an inflationary environment.Thesurvey also explored companies future expectat
47、ions across sectors.2023 Boston Consulting Group9AuthorsDavid LangkampMANAGING DIRECTOR&PARTNERHamburgMatt BeckettPARTNER&DIRECTORAtlantaCamille BrgMANAGING DIRECTOR&PARTNERParisSachin ShirwalkarPROJECT LEADERMumbai-Nariman PointArnab SinhaMANAGING DIRECTOR&SENIOR PARTNERPhiladelphiaJean-Manuel Izar
48、etMANAGING DIRECTOR&SENIOR PARTNER;GLOBAL LEADER,MARKETING,SALES&PRICING PRACTICESan Francisco-Bay AreaABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners with leaders in business and society to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pion
49、eer in business strategy when it wasfounded in 1963.Today,we work closely with clients to embrace a transformational approach aimed atbenefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.2023 Boston Consulting Group10
50、Our diverse,global teams bring deep industry and functional expertise and a range of perspectives thatquestion the status quo and spark change.BCG delivers solutions through leading-edge managementconsulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative
51、model across the firm and throughout all levels of the client organization,fueled by the goal of helping ourclients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at .To find the latestBCG content and register to receive e-alerts on this topic or others,please visit .Follow BostonConsulting Group on Facebook and Twitter.
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