In today's uncertain economic climate, heavy equipment manufacturers are constantly searching for effective ways to enhance their profitability. They have found that cost-cutting measures can only go so far, and as a result, they’ve turned to pricing as a crucial lever to respond to market fluctuations.
With decades of experience delivering measurable results for leading heavy equipment manufacturers and service providers, Simon-Kucher knows how to successfully guide businesses through volatile economic environments. Drawing from our extensive experience, we’ve identified five pricing strategies that heavy equipment companies can employ to become "pricing winners" under the current macroeconomic conditions.
1. Differentiate price increases by customer WTP, not just historical demand
To optimize pricing, it is vital to understand the elasticity of demand across different customer segments and product types. It is critical to understand variations in price sensitivity and use those insights to drive pricing decisions, ensuring actions are based on the current market, instead of historical demand. Additionally, considering the level of competition in each product type enables you to position your prices strategically, leading to a greater competitive advantage.
2. Reorient the business to manage for profit, not revenue/market share
Having an orientation for profit can be a super-power for a company but requires a transition from simply managing for revenue or market share. Establishing profit goals and aligning incentives accordingly ensures that the entire organization is marching to the same drumbeat. Additionally, it is critical to understand how different sales channels contribute to the business’ profitability – this will allow for optimal decision making when it matters the most. Ultimately, this is all made possible by equipping the team with management tools such as dashboards and scorecards, enabling the ability to make data-driven, profit-oriented decisions.
3. Ensure discounting drives ROI and isn’t just the path of least resistance
Discounting is a strategic tool that can be used to incentivize growth – businesses need to evaluate discounts given to customers and ensure that the most valuable customers receive the best prices. It is important to avoid giving discounts simply to close a deal – this incentivizes and trains a customer to “hold out” in the future, because they understand that a discount will eventually be included, instead of being a reward for specific behavior. By aligning your discounting strategy with profitability goals, you can strike a balance between customer satisfaction and financial success.
4. Understand the cost to serve across your customer base
Analyzing the cost to serve different customer segments is crucial for developing a comprehensive pricing strategy. By identifying the cost to serve for different segments, businesses can make more strategic decisions and consider opportunities to capture increased value. By differentiating between high and low-cost customers, companies can execute a fair and sustainable pricing structure that optimizes revenue and profitability.
5. Monetize innovations within your existing business
It’s critical for manufacturers to take a customer-led approach when setting prices for new products and innovations – understanding what customers value and how much they are willing to pay is an essential lens to fully monetize and capture the most value from innovations. This also includes determining how innovations are packaged and aligning on a price model that meets customers’ needs while maintaining profitability. Sales and marketing teams must also be included to verify the correct value articulation and sales techniques.
Simon-Kucher has proven strategies to help heavy equipment organizations to create sustainable growth. Reach out to us when you are ready to develop a winning strategy that will help your business grow.
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