In recent years, prices have risen in response to the pressure for high returns, new corporate taxes (9 per cent in the UAE recently announced), and high inflation (6.5 per cent in Qatar in the last two years). The impact of the pandemic over the past two years has led 68 per cent of Inverto correspondents within the raw materials industry to have conducted price negotiations as they undergo supply shortages.

CEOs within the manufacturing industry should understand - and preferably be ahead of – the trends that will likely drive their companies' success in the future. This includes having a better understanding of their market power.

How can CEOs best understand their market power?

A company’s ability to influence its product prices is entirely determined by its value within the market. By understanding the strength of their market power, CEOs and C-Suites can determine whether they can raise prices above marginal costs without suffering a decline in volume. We find the key success factors that contribute to this to be:

CONTROL YOUR SUPPLYCHAIN

Manufacturers face continual disruptions around the globe, adding costs and challenging their ability to adapt. Deloitte finds system wide complications from high demand, rising costs of raw materials and freight, and slow deliveries in the US, according to Purchasing Manager reports.

Higher prices are likely to be passed on to the customer as supply outpaces demand. The ability to control your distribution chain will also make it much easier to pass on any higher costs in production.

PROBLEM-SOLVING

As artificial intelligence (AI), augmented reality (AR) and virtual reality (VR) become more and more commonplace, manufacturers can now monitor, service, and operate equipment remotely – all without having to be on site. Virtual and remote operation is in keeping with other recent trends in the manufacturing process that enable access, flexibility, and safety, as advanced computing and communication make it seem like operators are on-site with machines.

Customers – particularly early adopters – are willing to pay a premium over competitive products if new products are driven by industry-specific innovation. There’s added value in knowing products have been enhanced by the latest technology.

STRENGTHEN YOUR BRAND

Consumers may become loyal to a brand when they see value in it, and this can discourage other companies from entering the market, protecting the brand’s own market share. This is how multiple notable price increases have been announced recently by CEOs of logistics companies (DHL), consumer products (Mondelez, Kraft Heinz), luxury retailers (Ralph Lauren), as well as telecom companies (Airtel). In the words of Ralph Lauren's CEO, who expects 17 per cent price increases, "you're bringing in a younger, higher value, and less price-sensitive consumer who can absorb the increase". The stronger your brand value, the higher your prices can become.

KEEP PRICING AT THE TOP

Our recent Simon-Kucher & Partners study explored the experiences of companies in the area of pricing. Only 37 per cent of participants said they were not involved directly or indirectly in a pricing war, although 57 per cent of participants confirmed that price pressure has increased in the last year. We also found in the study that 68 per cent of companies plan to increase prices at most in line with inflation in 2021, which is consistent with the fact that price is undervalued as a lever of profit.

Whilst the marketplace levels out within the “new normal”, now is the time to act in order for C-Suites to alleviate pressure on their margins and solidify their market power. And it’s more straightforward to do than one might expect.

By applying a straightforward framework, you’re able to start with a clearly formulated pricing strategy that sets out the direction to manage price priorities and market dynamics. Then you’re able to identify your value drivers to ensure you have the optimum product prices before going into execution. Finally, you are in a position to implement price governance, which provides structure and ensures control when diligently executing this framework.

Having pricing at the top of your management agenda, as well as measuring it, monitoring it, and communicating it, is crucial. In order to anticipate customer expectations, communication with customers and competitors is essential, while internal communication ensures there is no confusion and everyone is on board.