“Pricing” is an important driver for achieving profitability. While a lot of focus is there on fixed cost reduction and variable cost reduction, pricing strategy lacks the required focus at times. To deliberate on this crucial subject, CITI has organized a webinar today titled “Pricing Excellence in Indian Textiles & Apparel sector.” in association with Knowledge Partner, Progility Consulting. In this webinar, it was deliberated in detail on how “Pricing” can be leveraged to improve profitability.
The textile industry is largely commodity-driven and works on high-capacity utilization and one of the key success factors of the industry has been based on operational excellence, low waste & rejections, best-in-class manufacturing technologies, and processes. Having optimized these internal levers the textile industry now must look at “Pricing Excellence” which would require establishing formal processes, tools, and most importantly the mindset. During the webinar, it was explained how a 1% improvement in Pricing can positively impact profitability by 8-10% while a similar improvement in fixed cost or variable cost results only in an impact of 1-2% on profitability.
In moving towards “Pricing Excellence” the textile industry can learn from the leading companies in other commodity products companies such as Steel, Cement, etc on how to truly understand and “Communicate Value” to the customer and work closely in extracting the right value.
In the first phase of the Pricing Excellence journey of the “Discovery Phase” organizations need to formalize the “Quote to Order” process by implementing structured tools such as Margin Calculators, Quote Process, Pricing Tiers, and formal Quote approval process linked with strategic & commercial aspects of the business. Just to substantiate vide an example, it was explained in the webinar how companies have 3-5 approval layers in Purchasing even for a small value PO while on the same hand, a 1-2% discount is passed to customers without any proper documentation and approvals. In addition to formal documentation, there is also a need to establish proper analytics on ‘Quote Win Ratio’, Product Profitability’, ‘customer profitability, inputs price trends, etc. to have proper visibility on the decisions being taken in Pricing. In most organizations, there exists very Limited frameworks and tools available to evaluate all the above parameters and their impact on company profitability. In the second stage of “Pricing Excellence,” companies must focus on product & customer segmentation, product mix optimization, and customer segment-based service models to achieve ‘customer centricity’ which will further enhance the ability to get premium pricing over the market operating rates.
This webinar organized by CITI was part of its awareness workshops to give insights on Pricing and to emphasize that “Pricing cannot be guesswork anymore “and very structured tools and techniques will be required to maintain profitability. It’s all about going into micro details and asking pertinent questions such as Why a particular customer buys from us, what is the perceived value of our product, what is the customer dependency on our product: What is our product and pricing offering vis-à-vis customer expectations. By understanding these customer value points, companies can ensure sustainable profitability.