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.”
CIO INFLUENCE: Datometry Releases Driver Integration for BigQuery, Further Future-Proofing Its Customers’ Investments
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.
CIO INFLUENCE: Ericsson presents a Green Financing Framework
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.
CIO INFLUENCE: Apprentice Now Joins Amazon Web Services Training Partner Program to Deliver AWS Cloud Skills Training
[To share your insights with us, please write to sghosh@martechseries.com]
