How to Master the Manufacturing Pricing Game

Setting product prices in manufacturing is a critical balancing act. Aim too high, and sales suffer. Go too low, and profits evaporate. Today’s manufacturing environment has made this task increasingly complex.

The simple cost-plus formulas of the past no longer cut it. Manufacturers now grapple with a host of variables: unstable raw material prices, global rivals, and customers who demand both customization and value.

These challenges, however, also bring opportunity. Smart pricing approaches can reveal untapped profits, penetrate new markets, and strengthen customer loyalty.

This article dives into the strategies driving success in modern manufacturing pricing. 

We’ll explore real-world examples of companies that have mastered this challenge and provide actionable insights you can apply to your own pricing approach. 

The Manufacturing Landscape: A Sector in Flux

Recent economic data presents a complex scenario for the manufacturing sector. The Purchasing Managers’ Index (PMI), a key indicator of manufacturing activity, fell to 48.1 in December 2023. 

This figure, being below the 50-point threshold, signaled a contraction in the sector, with current output levels remaining below pre-pandemic peaks.

In early 2024, the PMI at last hit the break-even point of 50, signaling brighter times ahead. However, there are other challenges to contend with.

Volatile input costs and global competition have complicated pricing and cost management, with 31% of manufacturers reporting losses due to these risks in the past year.

The growing skills gap, with a projected shortfall of 2.1 million workers by 2030 (potentially impacting the economy by up to $1 trillion), has also created increased labor costs and productivity losses, putting upward pressure on prices.

So, with these challenges in mind, let’s review some impactful strategies for manufacturers to refine their pricing strategies and keep margins healthier than ever. 

Refining Manufacturing Pricing Strategies

As the manufacturing industry becomes more volatile, pricing strategies designed to keep margins strong, consistent, and predictable are more valuable.

From leveraging big data analytics and innovative software like Configure, Price, Quote (CPQ) to implementing new value-based pricing models, companies are finding creative methods of maintaining profitability while staying competitive. 

Let’s explore essential approaches to reshaping manufacturing pricing in today’s difficult market.

1. Embrace Dynamic Pricing Models

Today’s manufacturing environment demands agile pricing strategies. Prezzi dinamici allows manufacturers to adjust prices in real-time, responding to market fluctuations, demand shifts, and competitive pressures.

Implementing dynamic pricing requires some of the following technologies and strategies:

• Advanced analytics for market trend forecasting
• Integration of data from ERP, CRM, and supply chain systems
• Real-time market intelligence 
• Customer and product segmentation strategies
• Agile organizational processes to act on pricing insights

Through these technologies, businesses can tailor pricing on the fly, taking into account various internal and external data sources and variables. 

2. Implement Value-Based Pricing Strategies

Value-based pricing shifts the focus from internal costs to customer perception, aligning price with the value customers derive from a product. 

This requires manufacturers to deeply understand their customers’ needs, pain points, and the economic impact of their solutions.

Key elements of successful value-based pricing include:

• Rigorous market research to quantify product benefits
• Segmentation of customers based on value perception
• Clear communication of product value propositions
• Ongoing measurement of customer satisfaction 

Value-based pricing has become far more popular in B2B sales, where companies try to differentiate with superior customer service, support, and value-added services. 

However, businesses need to back up higher price points with stronger customer experiences and services that differentiate from competitors. 

3. Optimize Pricing Across Channels and Markets (Omnichannel)

Manufacturers face a complex challenge in pricing across diverse sales channels and territories. Each channel and market presents unique dynamics, customer expectations, and competitive forces.

Effective multi-channel, multi-market pricing optimization requires:

• Data analytics to interpret and respond to local market conditions
• Channel-specific models accounting for varied costs and competition
• Dynamic segmentation adapting to different customer behaviors
• Technology infrastructure managing complex pricing rules

This is all about collecting data and operationalizing it for pricing optimization. Big data analytics platforms, ERP, and business intelligence (BI) have made it easier to analyze margins across multiple channels to optimize pricing based on near-real-time inputs. 

4. Use Configure, Price, Quote (CPQ) Solutions

Soluzioni CPQ are specialized tools that transform pricing strategies for manufacturers, especially those dealing with complex, customizable products. 

These systems automate and optimize the pricing process within the quote-to-order workflow.

Key pricing vantaggi del CPQ includere:

• Consistent application of pricing rules across all quotes
• Dynamic pricing adjustments based on configurazione del prodotto
• Automated implementation of volume discounts and promotional pricing
• Real-time price optimization based on target margins
• Centralized control over pricing strategies and policies

CPQ solutions enable manufacturers to manage complex pricing and quoting scenarios effortlessly, from tiered discounts to customer-specific rates. 

It ensures all quotes reflect the most current pricing data, reducing errors while simplifying the challenging task of quoting products with numerous customizations.

Crucially, CPQ solutions like Epicor CPQ integrate seamlessly with other internal systems and external data sources. These include both proprietary and public databases, allowing the system to adjust pricing in real time. 

Getting to Grips with Manufacturing Pricing with CPQ

CPQ is an amazing tool for situations where products and pricing are variable and complex, such as where a single product might have countless variations, each affecting the final price. 

It automates the task of pricing these configurations, applying rules for volume discounts, regional pricing, special offers, and even live prices scraped from the competition. 

CPQ software is snowballing in popularity as businesses seek a more intelligent method for selling customizable products, from construction materials to electronics and sporting goods. 

Valued at $2.5 billion in 2023, the CPQ market is projected to reach $7.3 billion by 2030, growing at a CAGR of 14.1%.

Here are the core components that make up the best CPQ solutions:

• Configurazione del prodotto: Allows users to configure complex products accurately, ensuring all chosen options are compatible and meet necessary specifications.
• Dynamic Pricing Engine: Calculates prices in real-time based on the specific configuration.
• Automated Quote Generation: Produces professional, detailed quotes, including all relevant product specifications, pricing details, and terms.
• Capacità di integrazione: Seamlessly connects with CRM, ERP, and eCommerce platforms to ensure data consistency across systems.
• Analytics and Reporting: Provides insights into pricing performance, popular configurations, and other valuable business intelligence.
• Vendita guidata: Assists sales representatives or customers in navigating the configuration process using natural language prompts.
• Configurazione visiva: Offers 2D, 3D, and augmented reality (AR) visualization of configured products, enhancing the customer experience and reducing errors.

By combining these powerful features, CPQ systems enable manufacturers to transform their approach to pricing, quoting, and selling complex products.

4 Ways CPQ Can Elevate Your Pricing Strategies

CPQ systems integrate product configuration, pricing, and quote generation into a streamlined process, offering a powerful solution to the pricing delays and confusion we’ve discussed. 

Let’s explore four ways CPQ simplest and streamlines pricing, easing pressure on sales teams and enabling self-service for customers.

1. Accelerate Quote-to-Cash Cycle

As you know, the speed at which you transition from a customer inquiry to a final sale is vital for your win rate and customer satisfaction.

Traditional quoting processes, often reliant on manual calculations and multiple spreadsheets, are slow and prone to errors that can cost time and money. 

CPQ systems address this challenge head-on by automating and streamlining the entire quote-to-cash process. 

Example of CPQ in Action

CMTP, an Australian packaging company, illustrates the impact of CPQ sales acceleration. 

Before implementing Epicor CPQ, CMTP’s quoting process was a cumbersome task that could take up to two days to complete. Post-implementation, they slashed this time to just 5-10 minutes—a 99% reduction. 

This dramatic improvement didn’t just save time; it transformed CMTP’s ability to rapidly respond and serve customer inquiries. Read the full case study qui.

2. Ensure Pricing Accuracy and Consistency

Maintaining pricing accuracy and consistency across the organization is a monumental challenge for manufacturers, especially those dealing with complex, configurable products and those with multiple dealers and locations.

Inconsistent pricing erodes profits and can damage customer trust and brand reputation. 

CPQ systems solve this problem by centralizing all pricing data and rules in a single source of truth. 

This ensures consistent pricing and alignment with company pricing strategies regardless of who generates a quote or where it’s created.

Example of CPQ in Action

NanaWall Systems, a manufacturer of operable glass wall systems, provides an excellent example of the power of CPQ in ensuring pricing accuracy and consistency. 

With thousands of possible product configurations, pricing was a complex and error-prone process. 

By implementing Epicor CPQ, NanaWall created a centralized catalog of viable configurations and prices accessible to all sales reps, designers, and architects. 

This eliminated pricing discrepancies, reduced misquoting, and allowed for instantaneous price updates across the entire product catalog in response to market conditions. Read the full case study qui.

3. Enhance Customer Experience Through Visualization

In the B2B world, product complexity can often be a barrier to sales. 

Customers struggle to understand how different options will look or function in their specific use case, leading to hesitation in the buying process. 

Traditional sales methods, relying on static images or written descriptions, often fail to convey a product’s full value and potential.

CPQ systems, especially those with advanced visualization like Epicor CPQ, transform this experience. 

By providing interactive product configurations in 3D and AR, CPQ allows customers to see exactly what they’re buying in real-time as they make configuration choices. This reduces purchase anxiety and makes it easier for customers to get buy-in.

Example of CPQ in Action

Van Wijnen, a Dutch housing developer, exemplifies the potential of visual configuration in CPQ. They used Epicor CPQ to create a digital configuration tool that allows customers to customize their homes down to the last detail. 

With Epicor CPQ, customers can see real-time visual updates as they choose layouts, finishes, and features. 

As a result, sales cycle time was halved, and alignment between customer expectations and the final product improved, reducing post-sale issues. Read the entire case study qui.

4. Expand Market Reach Through Digital Channels

Traditional B2B sales models, heavily reliant on in-person interactions and manual processes, can limit a manufacturer’s market reach. 

CPQ systems, especially with eCommerce integration, can break down these barriers. 

By enabling online product configuration and instant quote generation, CPQ allows manufacturers to reach customers directly through digital channels, expanding their market.

Example of CPQ in Action

Xenith, a manufacturer of football helmets and equipment, demonstrates this in action. 

After implementing a CPQ-powered configurator on their website, Xenith generated about 15,000 transactions per month online. 

This new digital channel complemented their traditional dealer network, allowing them to reduce reliance on manual sales processes and align in-person and online pricing strategies. Read the full case study qui.

Transform Manufacturing Pricing With CPQ

CPQ systems go beyond speeding up quotes—they’re reshaping how companies provide value to customers.

With CPQ, businesses can effortlessly handle complex product options, nail pricing accuracy, and boost customer satisfaction. It turns pricing from a headache into a strategic tool, helping manufacturers quickly adjust to market changes and maximize profits.

Epicor CPQ supports businesses in achieving these objectives. Built for manufacturers dealing with complex, customizable products, it offers:

• Visual tools that bring product configurations to life
• Smooth integration with existing business systems
• Advanced pricing engines that tackle even the trickiest scenarios

Want to see how Epicor CPQ can transform your approach? Contattaci for a free demo today.

Manufacturing Pricing FAQs

Q: How can manufacturing companies effectively manage direct costs, such as direct material and direct labor, to optimize their pricing strategies?

Manufacturing companies can manage direct costs by implementing cost reduction initiatives, such as lean manufacturing principles, and using pricing software with costing capabilities to accurately track and allocate direct costs and total manufacturing costs to products. This helps inform pricing strategies and maintain profitability.

Q: What role does manufacturing overhead play in determining the total cost of production, and how can companies account for indirect costs in their pricing?

Manufacturing overhead, which includes indirect costs like utilities and rent, contributes significantly to the total cost of production. Companies can use activity-based costing methods to allocate indirect manufacturing cost to products more accurately. This information can then be incorporated into pricing analytics and strategies to ensure prices cover all relevant costs.

Q: How can contract manufacturing and outsourcing impact a company’s pricing strategies and competitive pricing in the market?

Contract manufacturing and outsourcing can provide cost reduction and flexibility, allowing companies to potentially offer more competitive pricing. However, companies must carefully manage relationships with contract manufacturers and consider factors such as quality control, lead times, and the impact on their overall product cost structure when making pricing strategies.

Q: What are some effective pricing strategies for manufacturing company to maximize profitability and market share, such as value-based pricing or dynamic pricing?

Value-based pricing, which aligns prices with the perceived value to customers, can help manufacturers capture a fair share of the value they create. 

Dynamic pricing, which adjusts prices in real-time based on market conditions and demand, allows manufacturers to optimize prices and respond quickly to changes in the competitive pricing landscape. 

Implementing pricing software can support these manufacturing cost calculations and pricing strategies by providing data-driven insights and automating complex pricing rules.

Q: How can manufacturing companies leverage pricing analytics and pricing software to gain insights into customer behavior, market trends, and opportunities for price optimization?

Manufacturing companies can use pricing analytics and pricing software to collect and analyze data from various sources, such as goods sold transactions, customer interactions, and market research. This data can provide insights into customer preferences, price sensitivity, and willingness to pay. 

Pricing software can also help identify opportunities for price optimization, such as segmenting customers based on value perception or adjusting prices across different channels and markets. By leveraging these tools, manufacturers can make data-driven pricing decisions that improve profitability and competitive pricing.