MUNICH & CHICAGO--(BUSINESS WIRE)--The economy is entering 2023 with high inflation, rising interest rates and recession fears which have led to businesses enacting cost-cutting measures, including workforce reductions. Global conflict and economic disruptions will keep organizations on their toes to adapt and find ways to stabilize potential impacts on their supply chain and market demand, according to experts at Pricefx, the global leader in cloud-native pricing software.
“So much uncertainty is likely to impact the level of confidence in people and companies to go back to pre-pandemic spending,” said Gabriel Smith, Chief Evangelist and Head of Solution Strategy at Pricefx. “However, aggressive cost-cutting or reducing strategic investment is the kind of slash-and-burn tactic that seldom works. Avoid letting go of valuable assets that will be key to future growth. The COVID period shows us many examples of industries that have become paralyzed by an inability to ramp up quickly when opportunity returns.”
Pricing experts Gabriel Smith, Doug Fuehne, Garth Hoff, Jose Paez, and Michelle Duffy predict the following in 2023:
More manufacturers will go Direct-to-Consumer (DTC)
The ability to better control price performance, eliminate any unnecessary middle channels and improve the relationship with end customers will push brand manufacturers to offer their products through their own channels. This will also drive the creation of new products and contenders in the market that will capitalize on a smaller footprint required and a boutique-like approach to their products to capture demand, even at higher prices, from more established brands. As a result of this type of strategy, more brands will also invest heavily in initiatives that deliver a shorter path from manufacturing to end user.
Transportation costs down, fuel costs up
Transportation costs will go down in 2023 due to overcapacity in the market and lowering of demand for shipments. This will be mitigated by fuel costs remaining high, preventing the market from bottoming out completely. Seasonally, we will see shipping rates drop significantly after the first of the year and not recover until the produce season starts in the latter part of Q2.
Backlog will remain strong at least through the first half of 2023, but all distributors should be preparing for a scenario where much of the backlog is delivered and leaves them loaded with inventory they purchased at a high cost while the manufacturers are lowering the purchase price to move their inventory.
Market volatility continues
Volatility in the Producer Price Index (PPI) will resonate across all industries, not just those that are more frequently associated with market-based index pricing. Price trends in commodities are coming down, but off of all-time highs. The markets are not deflationary, as prices are generally still rising. Market dynamism is increasing, meaning there is much higher variance, both high and low.
Automatic price changes based on cost inputs is a key margin management lever. Companies investing in margin management and price optimization will outperform the market with top performers being 2-3 times more likely to price dynamically and 9 times more likely to use value pricing. Pricefx is seeing companies execute 5-10x more price changes than typical. However, the vast majority of organizations are not set up to deal with the number of frequent cost changes, nor have the mechanisms in place to efficiently pass them through to their customers. Companies that can efficiently model where to pass through cost and not stifle demand will come out winners.
Mergers and acquisitions spike
Many companies are flush with cash at the end of 2022 and the IPO market is slow. As the companies underperform and value declines in 2023, cash-rich companies could go on a buying spree to gain market share and narrow the competitive landscape.
Technology investments will create a chasm
Volatile stock markets will slow business investment in technology projects. Pragmatic organizations will double-down on key technology initiatives and emerge more profitable over their peers. Market disruptions make winners and losers; success depends upon making the right moves. Multiple studies during 2020 revealed that companies that continued with investment in technology capabilities consistently improved margin gains over 200 basis points emerging out of COVID. Underperforming organizations will go back to tired and unsuccessful playbooks. These companies tend to revert to familiar and often bad behaviors in times of crises.
“Businesses should avoid common traps and remain disciplined,” said Garth Hoff, Director of Industry Strategy at Pricefx. “Avoid the 'see what sticks' approach and instead focus resources on targeted investment in R&D and strategic acquisition in a broad context. Executives should not get stuck in analysis paralysis. Now is the time to act and be decisive.”
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About Pricefx
Pricefx is the global leader in SaaS pricing software, offering a comprehensive suite of solutions that are fast to implement, flexible to configure and customize, and friendly to learn and use. Based on cloud-native architecture, Pricefx delivers a complete price optimization and management platform that provides the industry’s fastest time-to-value and lowest total cost of ownership. Its innovative solution works for B2B and B2C enterprises of any size, in any industry, in any part of the world. Pricefx’s business model is entirely based on the satisfaction and loyalty of its customers. For enterprises facing pricing challenges, Pricefx is the cloud pricing optimization, management, and CPQ platform to dynamically Plan, Price and Profit. For more information, please visit www.pricefx.com.
