The Resilient Packaging Industry is Still Susceptible to Disruption
“Packaging is a critical enabler for the everyday lives of most consumers,” states McKinsey.com.
The B2B packaging manufacturing industry has shown tremendous resiliency over the past few decades due to its ability to adapt to evolving consumer trends. In the early 2000’s as consumers demanded more convenience, packaging manufacturers shifted from rigid glass and metal packaging to more flexible plastics. The 2010’s saw the rise of health and wellness trends, and the industry responded with smaller and high-functioning packaging across even more categories. Then in 2020 as the COVID pandemic drove consumer demand for safety, leak-free and airtight packaging was the next innovation.
However, despite packaging manufacturers’ adaptability, areas of disruption remain. Economic uncertainty, in the form of unprecedented inflation and market volatility, is wreaking havoc on manufacturers’ ability to keep up with cost changes and ensure market-aligned prices on their highly configured products. Additionally, as demand for technological innovations such as self-service tools and automation grows, packaging manufacturers must scale digital transformation efforts.
In this blog post, we’ll examine how to solve the configured product pricing puzzle, how to power smarter and faster pricing in CPQ, and why digital transformation is essential to competing effectively in today’s landscape.
The Configured Pricing Puzzle
For many B2B packaging manufacturers, offerings are built or configured to satisfy a customer’s unique engineering specifications. Given all the variables involved, the possible configured combinations can easily number in the thousands, if not millions. List prices and standard costs are rarely available for every possible configuration or specification, and there are often few examples of prior sales of the exact same configuration to a similar customer.
As a result, product managers and sales teams end up flying blind without the customary guardrails for effective pricing. Profitability suffers due to all the guesswork, gut-feel pricing, and arbitrary rules of thumb that become workarounds. Customers and channel partners start to grumble about the lack of consistency in the prices they are being quoted. Finally, close rates are lower than they should be because it takes so long to work through all the issues and turn around a quote.
Solving the Puzzle with Price Optimization Software
These challenges, combined with the ever-increasing pace of B2B commerce, have motivated manufacturers to transform the way they set prices, negotiate costs, and respond more quickly to each customer segment with strategic pricing. Price optimization software makes it possible to account for each cost factor within a Bill of Materials (BOM) and calculate market-aligned pricing per component or the total solution that meets pre-defined margin targets.
When each transaction is specific and not SKU-based, each component must be designed and costed before price can be considered. Simply creating the initial product selection that allows you to get to a final configured product is a massive data management challenge. Many manufacturers go about this by gathering all the built-upon costs and adding a markup, but the decision-making for that markup is often a guessing game.
A more efficient way to arrive at the markup is with price optimization software. Zilliant’s price optimization solution, Price IQ®, is proven to effectively deliver market-aligned prices, even for configurations that are being built and sold for the first time. This is because Zilliant’s price optimization engine uses advanced techniques to determine the factors that drive price response. By analyzing the characteristics of the configuration and the customer that is purchasing it, the system derives commonalities to help set prices more consistently across the endless number of potential configurations.
The Missing “P” in CPQ
Configure Price Quote software, commonly referred to as CPQ software, is no doubt the most effective way to deliver price guidance to sales reps as well as streamline and provide guardrails in the quoting process. However, the only true pricing functionality offered in a CPQ is simply the ability to load basic pricing logic or price books into the software to populate a quote. This misses a critical component of generating an effective quote: getting the price right.
When solely reliant on CPQ, B2B companies lack these critical pricing capabilities and are forced to use more rudimentary methods that likely result in revenue or margin loss. To generate and manage prices, B2B companies need to complement CPQ with price optimization and management software.
Powering Smarter, Faster Pricing in Your CPQ with Price Optimization and Management
Zilliant provides price optimization and management software that gives back-office pricing team the ability to ensure the prices that salespeople see in CPQ are market-aligned and contextually relevant to each selling circumstance.
The Zilliant pricing solutions can be integrated with CPQ software via the Zilliant Real-Time Pricing Engine™ or through batch processes. While our end-to-end pricing solutions add tremendous value to CPQ software, many companies utilize them as a stand-alone solution or integrate the pricing back into CRM, ERP, eCommerce, order entry systems, or other commercial applications.
Zilliant’s price management solution, Price Manager™, gives pricing teams greater control and visibility over price and rebate management, as well as the ability to update pricing as market conditions change. Additionally, Zilliant Price IQ® uses constraint-based optimization to simultaneously enforce business rules, runs predictive what-if scenarios, and produces optimized price guidance for all the different ways price is expressed in a business.
When pricing guidance is market-aligned and delivered within CPQ, companies are better able to:
- Improve the speed and effectiveness of pricing decisions within the quoting process
- Ensure price guidance in CPQ reflects up-to-date pricing strategies and market and cost changes
- Increase sales confidence by providing contextual analytics, including historical prices paid by other customers in the same pricing segment, and scoring price quality
- Simplify a complex quoting process by dynamically optimizing line-item pricing with order-level targets
- Accelerate quote turnaround time with real-time approval guidance
Digital Transformation is Essential to Compete Effectively
Digital was becoming the norm for commerce even before the pandemic instilled a sense of urgency into B2B business leaders. Now, digital transformation is no longer a luxury and is critical to shaping commercial strategies and enabling B2B companies to compete effectively in today’s landscape.
Here are some critical digital transformation strategies to keep in mind:
- Provide a unified customer experience across all channels. Give the user the ability to pick their preferred channel, whether that’s picking up the phone, going online, or meeting with a sales rep in person, and ensure consistency across those channels when it comes to pricing and experience
- Respond to evolving market triggers, such as cost changes, competitive dynamics, or macroeconomic events, with appropriate tactical adjustments to pricing, selling methodology, and even go-to-market strategies
- Leverage technology advancements and innovations, including self-service tools, automation, and data-driven insights, to unshackle users from technology limitations
B2B companies that can capitalize on this once-in-a-generation transformation will undoubtedly flourish over the next decade and set themselves apart from the competition. Digital transformation will require building or choosing a partner to help provide the right solutions, and Zilliant has partnered with many organizations to make this digital journey more effective and efficient.
To learn more about configured product pricing for manufacturers, enable smarter and faster pricing, or get started on your digital transformation journey, contact Zilliant today.