Dr Joern Meissner

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Meissner Research Group — Operations Strategy and Pricing Management Blog

Supply Chain Management in the Upturn

February 8th, 2010 by Hongyan Li

The economic upturn is largely believed to be happening, and all industries make take notice, including manufacturing, to create the best outcomes for their supply chain management. With a predicted 2.1 percent rise in gross domestic product and 3.2 percent rise in US manufacturing production in 2010, manufacturers must have a solid foundation to effectively and profitably leverage opportunities for the recovering economy.

Manufacturers, especially of customer goods, must be able to react quickly to the recovery. Those companies that continue to free up unnecessary inventory will have more flexibility to change business strategies or respond to market surprises. Companies can strengthen cash position by continuing to rationalize inventory levels against the changing product mix across the entire supply chain, aligning levels with current consumer demand.

Manufacturers can also realign the supply chain to achieve financial goals by taking control of financial and operational strategies. An integrated business planning approach goes beyond aligning supply and demand and integrates time-phased strategic revenue, cost, and margin plans with a company’s operational plans. This not only improves collaboration and responsiveness to market change but also enables executives to set financial expectations for all sales, marketing, promotion, inventory, and capital expenditures plans, which is a critical element for success in any economy.

Newer supply chain technology might also be helpful for this collaborative approach. While traditional technologies have helped manufactures tactically balance supply and demand, a next-generation, integrated business planning approach will transform this into a process that integrates the entire business and enables company executives to confidently deliver on strategic objectives. Total supply chain integration, collaboration, and visibility will enable manufacturers to transform business practices, adopt new strategies and seize opportunities that arise in the recovery.

Although there’s speculation on the rate of the economic recovery, what’s certain is that there will be long-term effects on new consumer habits. History shows that those who can afford to invest during an economic recovery come out winners by capturing market share. Even as the economy rebounds, consumers will continue to be more spend conscious than ever before. Successful companies will seize these opportunities to create a strategic advantage by frequently aligning and rationalizing product offerings with the changing preferences of the new consumer. By weeding out poorly performing products, positioning the right assortments on store shelves, and setting the right pricing and promotional strategies, manufacturers can drive market share and profitability. Catering to consumer demand will also enable manufacturers to build market share and long-term brand loyalty, even as consumers find themselves with more discretionary spending income in the future. Additionally, establishing closer collaboration with retail partners can provide insight into point-of-sale and SKU data, enabling manufacturers to better respond to shifts in market conditions, inventory production planning and scheduling beyond the current economic cycle.

Timing is everything in a financial period where customers, retailers, and your own company change every day. Learning to be prepared for these changes and to anticipate your customers and retailers’ need are the ways to keep your company increasingly profitable during the upturn.

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Pricing Strategies for the Upturn

January 4th, 2010 by Joern Meissner

Depending on which politicians and pundits you listen to, they will tell you that at the beginning of this new decade, the economic recovery has not only started; it has happened. Whether or not you believe them doesn’t matter. At the beginning of this new year, you and your company are going to face an upturn as the market slowly pulls itself from the recession.

Now that your company has survived the recession, your pricing will have to reflect the new market. As an executive, you must become your company’s watchdog, keeping an eye on the market, your product, and your company, all to discover exactly where your price point should be. Here are several ideas to keep you and your company in the black in the coming upturn.

  1. Don’t Jump the Gun

    This isn’t the free-for-all market economy anymore. After the recession, customers are still weary of big, corporate business and are just as likely to walk over to your competitor as they were before (and during) the recession. If you lowered your price point in a price war to survive the recession, you’re still stuck with that price point. Price points rarely rise after they’ve been lowered for any amount of time, even if the market (or inflation) shows they should be raised. The one thing customers hate even more than faulty products are rising prices, and if you think you can return to pre-recession pricing, your customers will disappear more quickly then they did during the recession. You will need to be careful and if you feel there is resistance to accept a price increase, you might consider introducing an improved version of your product and phasing out the old one.

  2. The Market Still Fluctuates

    The thing about our current market era is that everything changes and will be likely to continue to change until further notice. Every day is a new battle. The coming months, overall, will be marked by a slow rise of growth. But the stability in that growth hasn’t happened yet. We no longer live in a period of continual growth, and your pricing should reflect that. Just because your profits are up last quarter thanks to a boost in holiday sales, doesn’t mean that your market is back to what it used to be (or even close to what is used to be). Any particular market could still come crashing down. Be wary that data about consumer demand, such as elasticity, might be outdated faster than you would wish, and customer preferences can quickly shift. As such, it is important that you run constant price trials to be ahead in these time of change.

    Resting on your laurels will only lead to frustration and money loss. As the executive, it is your job to watch the market and predict when the rises and the falls will happen. And then price accordingly.

  3. The New Pricing

    Throw away old ideas about price wars and simply having the lowest price. Customers, themselves having survived a recession just like your company, are smarter and far more savvy than they used to be. Instead of creating a price war that is bad for everyone but the customer, take your services and your products and find new ways to market and price them.

    The first step is to keep your existing customers. In a scramble for new customers that may have more extra capital then they did six months ago, don’t forget about the people who got you through the recession. Look for reasons why they stayed with your company and reward them with services and products that reflect those reasons. If you’re an internet and telephone company and your customers chose you over a competitor because you promised them a free phone line for signing up, then give them that free line for another year if they decide to stay. Keeping these core customers should be priority one.

    For new customers, add tangible value to your offerings. Instead of raising the price on your old products and services, add new services, upgraded products, or something else that the customer can actually see as being beneficial to them. Once a customer sees the benefit in your offerings, they will be more than happy to pay a higher price. Just remember to offer these new deals to your old customers, as well.

Essentially, creating a healthy profit from the upturn is as much a challenge as surviving the recession. As the executive, you must take responsibility for your prices and be aware of everything that happens in your market. The market is in flux, and while your prices can’t be constantly changing to reflect that, your pricing strategy must. Be prepared to implement a new strategy the moment the previous one no longer works. By doing so, you’ll create a precedent that will help your company take advantage of the upturn and generate more profits. The market fluctuations might even offer a rare chance for well-prepared pricing managers to get a greater market share without compromising profitability.

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