To prevent margin erosion, price increases are inevitable. However, accurately managing price changes is not easy. Price optimization and management systems can help you to find and implement optimal price increases for all clients and products.
Rising inflation over the past two years has increased costs along the entire supply chain. These increases are not temporary and cannot be offset by efficiency gains and cost reductions alone. The medtech industry is aware that prices need to be adjusted to ensure profitability, as our recent survey of medtech suppliers shows: 90 percent of respondents are planning price increases.
Our Smart Price Increase Framework helps companies to successfully increase prices while avoiding common pitfalls. Having a solid strategic framework is the first important step to achieve pricing goals. Yet, implementation is an often-underestimated challenge and, if done poorly, can compromise the effectiveness of the framework.
In terms of implementation, Excel has proven to be a flexible tool for managing pricing and is still used in many medtech companies today. However, if you want to go one step further and optimally manage prices in the long term, price management systems are an essential enabler for any pricing initiative and key to achieve pricing excellence.
But what exactly are the advantages of dedicated software compared to Excel tools for pricing?
Price optimization and management systems enhance framework and strategy execution
Price optimization and management (PO&M) can represent untapped potential for companies. As an enabler, they can significantly increase profitability by making pricing market-driven and easily scalable across the entire product portfolio, customers, channels, segments, regions, etc.
Implementing a price increase framework in dedicated software increases its effectivity in various ways. Two most notable advantages are automation and improved pricing governance.
- PO&M systems help to clearly define the pricing processes and ensure process compliance. They enable far more efficient pricing management by automating processes and seamlessly connecting to other systems, thereby reducing manual effort, and freeing up capacity to work on other commercial priorities.
- PO&M systems centrally control and monitor pricing and at the same time allow sufficient flexibility to adapt to market conditions. Excel can only realize these advantages to a very limited extent and is far more complex to operate, often dragging out the processes and limiting annual pricing adjustments.
But how exactly do PO&M systems help with price increases now? To better illustrate this, let's look at how each phase of our Smart Price Increase Framework is enabled by PO&M.
1. Level configuration: Find the right price increase targets
The first phase of the framework entails defining the price increase goal and targeting. Finding the right price increase targets with PO&M systems is rather simple, as the software can analyze cost developments, notify users if margins are compromised, and make price increase suggestions to offset the difference.
PO&M systems can differentiate products and customers by pre-defined criteria and find new criteria and segments through continuous automated analyses. This enables the software to differentiate and optimize price increase targets according to multiple characteristics, e.g., competitive advantage, lifecycle, market situation, product profitability, etc. This enables you to efficiently steer price increases across all products and price lists.
Everything can be set and controlled flexibly in PO&M systems, so particularly price-sensitive products or certain customers will receive a lower price increase and other products a higher one to reach the overall price increase target. It is always possible to provide manual input and add expert insight to the data-based analyses and suggestions.
2. Implementation preparation: Establish central governance
Decision-making powers must be clearly defined, processes must be adhered to, and goals must be incentivized so that the framework achieves the desired effect. This is often easier said than done, especially with tools outside of an integrated system landscape, such as Excel, where there are many ways to circumvent prescribed processes and decisions.
PO&M systems have the edge here as they let companies establish central governance over pricing. Here you can implement your approval and escalation rules into the systems to prevent them from being bypassed and to provide complete transparency and traceability of decisions. Meanwhile, you significantly reduce decision-making and response time.
This can also include globally and locally relevant rules and calculation factors to help achieving a hybrid pricing approach that is tailored to the business and market, creating a controlled flexibility and market focus of pricing. Furthermore, the improved collection of price-related data makes it easier to track sales performance and introduce margin-based sales incentives.
3. Roll-out plan: Provide real-time guidance
Last but not least, the framework must be rolled out and applied in practice. However, there are also stumbling blocks here that are often underestimated.
In order to be able to realize prices, sales teams must be trained about the initiative and be provided with clear argumentation guidelines. PO&M systems provide price guidance in real-time tailored to customers and products, as well as historic information about the client, the products, and transactional data to support your sales team in negotiations.
In addition, PO&M systems monitor relevant KPIs and evaluate prices across all levels of the customer or product hierarchy down to the SKU-level. This ensures full transparency and monitoring of prices to secure margins and prevent price erosion and leakage. Outliers that threaten profitability are clearly flagged and can either be eliminated manually or the countermeasures suggested by the system can be accepted, such as price increase suggestions due to cost increases.
Act now – Unlock better growth through PO&M systems
PO&M systems offer long-term potential for your company to increase the effectiveness and efficiency of pricing. Selecting and implementing the right systems to support your business takes time and effort, so it's important to start early.
The crises of recent years have strongly driven digital transformation in the medtech sector and made the industry aware that these systems will be indispensable in the future.
One thing is clear: Excel-based pricing was yesterday. With many companies starting to implement PO&M systems now, others must keep pace to avoid losing out to the competition.
Interested in further information and best practices on PO&M systems? Wondering how to select the right software? Reach out to Omar Ahmad and Aleksander Jarosz today!
Thanks to our contributor: Angela Philippi, Senior Consultant