Chief Pricing Officer

This blog has covered a lot of ground over the last eight months, from economics jokes to retail and wholesale pricing concerns, from the meat industry to the president’s inaugural address.

Though there’s a little something for everyone in the pricing field on the CPO blog, at its core it is dedicated to the issues touching the manufacturing pricer, strategist, executive.

Today’s post offers a handful of articles that create a sobering retrospective. My hope is that by acknowledging reality and embracing the means to a solution, the headline in 2010 will be a banner proclamation that the manufacturing industry has not only survived, but transformed itself into a model industry of transparency and intelligent business.

2009
The Collapse of Manufacturing
Economist
http://www.economist.com/opinion/displaystory.cfm?story_id=13144864

“The destructive global power of the financial crisis became clear last year. The immenisty of the manufacturing crisis is still sinking in, largely because it is seen in national terms - indeed, often nationalistic ones. In fact manufacturing is also caught up in a global whirlwind…

2007
For Manufacturing, a Recession Has Arrived
New York Times
http://www.nytimes.com/2007/02/28/business/28leonhardt-web.html?_r=1&scp=5&sq=manufacturing&st=cse

“Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we’re headed for a real recession?”

The manufacturing industry has a chance to reinvent itself and our hope lies in transparency. Transparency of price is a powerful point to start the ripple effect that will change the entire conversation throughout the supply chain -  and the economy. From another recent Economist article, this one on the finance industry, we are offered a truth that should be equally applied to all industries:

“When information is relevant, standardised and public, it fosters intelligent decision-making.”
Economist
February 21, 2009
http://www.economist.com/finance/displaystory.cfm?story_id=13144773

To me, that sentiment gives hope for the possibilities yet to be fully realized in manufacturing industry.

Pricing technology is definitely not new.

The airlines industry first pioneered pricing strategy with what they called “yield management” – discounting seats on less popular routes and maximizing prices on routes that have a lot of demand. The Professional Pricing Society was established in 1984 as the field began to heat up (check out their blog). The hotel industry got on board in the late 1980s using what was referred to as “sophisticated computer techniques,” followed by retail-specific software technologies.

The manufacturing sector is one of the more recent industries to benefit from price technology, though technologies vary widely across vertical markets such as food, chemicals and consumer packaged goods. As Managing Automation’s Chris Chiappinelli points out, pricing technology for manufacturing has made a lot of progress since the days of scratch paper, gut instinct and spreadsheets:

“For a long time now, the practice of product pricing has involved more art than science, with product managers and sales professionals governed mostly by what ‘felt right.’ In recent years, however, science has started to gain the upper hand, and the sun may be setting on the era of ‘pricing by the gut.’”

As technologies have evolved and fragmented to serve more specific niches, analysts and vendors have struggled to classify different breeds of pricing technology. Some might say the category has had a bit of an identity crisis. Depending on the industry and market, you’ll find price-related software under labels ranging from “yield management” to “merchandise optimization” to “demand and revenue management.”

We’re currently experiencing the next evolution in the sophistication of pricing technologies with the maturation of the Software-as-a-Service (SaaS) delivery model. SaaS makes it possible to offer massively scalable, high-powered number crunching software based on finely-tuned, dynamic algorithms - a major stride compared to the past industry standard of static, rules-based systems that require on-site installation and ongoing customization. I could go on about the benefits of SaaS for price optimization, but I’ll leave that for another post.

As is - unfortunately - too often the case with government economists, Federal Reserve Bank of Atlanta President and CEO Dennis Lockhart told us last week what we already know: Prices are too high.

Lockhard said that food prices have inflated 6.5 percent through the first half of 2008, while motor fuel jumped 32 percent and home utility costs rose 21 percent. According to Lockhart, those three things account for 25 percent of all consumer spending.

There was good news too, as Lockhart also predicted that inflation would ease as the overall sagging market naturally tamps down inflation. But, there’s still only one key takeaway for American manufacturers and consumers: It’s going to cost more to produce things and buy the products made.

The easing of inflation will be a welcome respite for all involved. But, ultimately, it will be like that 90 degree day after it’s been in the 100s for days straight: It’s nice, but still not too comfortable. Inflation, or at least volatility, will be with us for awhile, and price is quickly becoming the new flashpoint for the 21st Century. For manufacturers, smart pricing is essential in an inflated market - finding the correct balance between cost and demand, as supply prices spike, is quickly becoming the most important new business calculus of our time. Companies that have the correct insight into how to properly buy and sell will emerge as the new leaders, while those that don’t will struggle.

That’s an easy side to choose.