Digitalization and value based pricing in the manufacturing industry

A value-based price is very much connected to customer’s experience and impression. However, today’s online marketplaces lack a sense of exclusivity and warm personal communication, and even good old-fashioned negotiation. Nowdays, digitalization is constantly changing the rules of game. Products are put online worldwide, their price and features are more transparent than ever, and new sales channels and pricing processes are and have to be constantly reinvented.

The Copperberg podcast on digitalization and value-based pricing moderated by Gerhard Rill, Head of Pricing and Proposal at Airbus Germany, gathered experienced pricing experts from manufacturing industry around the world.

By definition, creating a value-based price relies on the process of evaluation of how much a product is worth to a given customer, understanding how those factors compare with competitors’ offers, and quantifying the value created for the customer. (McKinsey). So far digitalization has changed many business processes and has affected pricing mechanisms of companies which display and sell their products online.

Lars Möller, General Manager – After Sales, at equipment distributer company, Al Shirawi Enterprises based in Dubai, UAE, who has more than 20 years of experience in the heavy equipment industry and commercial business and has been in senior after-sales management roles covering service and spare parts, thinks that digitalization and value based pricing in the manufacturing industry is an “ongoing battle, new players coming in, new ideas,” walso makes the manufacturing world very interesting.

Mr. Möller has noticed that one of the threats to stable value-based pricing management is that customers can easily go online anywhere in the world and check prices. This is also underlined by Katrin Huberth, Distribution & Pricing Manager from Puls GmbH, who explains how e-commerce is changing this and almost every other step on the value pricing path:

Firstly, prices are becoming more transparent and easily accessible via the Internet, “You enter product number and you immediately find information about where to buy a product and at a what price, and you also find information about competitors, which leads to new opportunities and challenges.”.

Greater transparency and the fact that you can analyze a competitor better than ever leads to better evaluation. Companies are now able to more accurately identify what kind of value they can provide to their customers in comparison to competitors and therefore better personalize and target their buyers.

New pricing strategies, new sales channels and companies’ own web shops call for adoption of channel management methods that can help companies to keep and harmonize both online and traditional distribution partners. Now companies are not looking at a single country as a market, but are comparing with other similar companies on the global market.

Paolo De Angeli, Pricing Group Expert at Borealis, Austria has noticed that the industry that was once at a very low level in terms of digitalization and e-commerce is now booming, leaving companies with the urgent need to reinvent, commoditize, and use transparency to differentiate:

“There is an opportunity to learn what your customer’s needs are. You can quantify what you can do for your customers, and make a better price. Only those that can serve customers better eventually win.”

Elma Driesbach, is Head of Pricing Tools and Processes at Merck’s laboratory supplier “Life Science”, a key player on the market with a portfolio of more than half a million products that are sold globally using various sales channels.

Their own online marketplace, a website, is increasingly important and the half of order revenue comes from it. The other part of revenue of the company comes through dealers, or from face-to-face sales to customers in a traditional way. Still, the company needs to level the prices of products for very different local markets:

“Digitalization is making everything transparent so you need to be more careful. The customers can see the difference between the price of the same product offered in Africa and America, and then a client will ask why the price is different,” says Mr. Driesbach.

The podcasts’s moderator, Mr Rill, confirms that digital pricing is constantly changing the way we do business, and that it is a critical technology that companies must implement to be stay relevant and maintain their competitive edge.

And while digitalization is bringing many changes in business today, it may bring even more change in the future. New opportunities, threats, as well as new competitors, may emerge. In the meantime, companies need to enable different channels of key account management and online business to work together and not compete against each other, concludes Gerhard Rill.