Manufacturing Today - Summer 2010 - (Page 16)
RAFE VANDENBERG AND BARRETT THOMPSON
the heart of the lifecycle is key
Looking over the lifecycle of any particular product, B2B manufacturing executives are often disappointed with what they see. More often than not, the actual results bear little resemblance to the pricing assumptions and profitability projections that were used to justify the development and production of the product in the first place. Everything looks fine and on-track near the beginning of the lifecycle but then, in the heart of the lifecycle, pricelevels and profit-performance take a turn for the worse.
Many manufacturers will simply chalk this dynamic up to the “unforeseeable factors” such as competitive entries into the market, fluctuations in demand, and other factors product managers simply couldn’t know about when making their projections. Of course, this reasoning is completely valid and these factors can indeed play a major role in pricing and profitability over the lifecycle of a product. 16
manufacturing-today.com SUMMER 2010
For many manufacturers the product management function is largely about managing the introduction of new products, or shepherding the latest-and-greatest version of existing products, into the marketplace. Understandably, pro duct managers are primarily concerned with introductory pricing or strategic pricing at the beginning the products’ lifecycle. As part of this introductory process, product managers will likely conduct fairly rigorous value-based pricing research. They may run various diffusion or uptake scenarios to estimate volumes, revenues, and profits over time. They might train the sales staff on the new product’s features and benefits. Product managers might even spend a lot of time working with early customers to get the initial production volumes flowing. But once the new product has been introduced and high-level pricing guidelines have been established, it’s not uncommon for product managers to shift their focus to the next new product on the roadmap. In this way, the responsibility for tactical pricing effectively shifts to sales as the product is “thrown over the fence” after successful introduction.
M F G TOMORROW
B USINESS VALUE
P R O F I TA B I L I T Y
The Unmanaged Majority of the Lifecycle
The problem is that the period “beyond introduction” comprises the majority of a product’s lifecycle and profitability. In reality, it’s common for a product to spend up to 75 percent of its lifecycle under the day-to-day management of a manufacturer’s sales group (see graph). Very often, the tactical pricing capabilities in sales lack a high degree of rigor and precision. In sales, pricing and discounting decisions are often made by gut feel tactics or by applying some basic rules of thumb. Salespeople may fall back on the last-price-paid by the cus-
There is another common factor behind this phenomenon; one that is much closer to home and whole lot more predictable.
Over the Fence
While it might be implied or assumed that a manufacturer’s product management function is actively adjusting the pricing of a product through every stage of its lifecycle, the reality is often very different.
Table of Contents for the Digital Edition of Manufacturing Today - Summer 2010
Manufacturing Today - Summer 2010
Ultrafryer Systems Inc.
Wil-Rich LLC & Wishek MFG LLC
American Precision Fabricators
Aqua Products Inc.
Black Diamond Equipment
Columbian Home Products
Control Devices LLC
Endustra Filter Manufacturers Inc
Heil Trailer International
Professional Building Systems Inc.
Smart Start Inc
Ausco Products Inc.
Chapin International Inc.
Cleveland Gear Co.
Consolidated Precision Products
Control Flow Inc.
Douglas Autotech Corp.
Fetzer Architectural Products
The FNA Group
Fourslide Spring and Stamping Inc.
G.A. West & Company
Great Lakes Power Group
Grimm Brothers Plastics
Legends Furniture Inc.
National Tube Supply Co.
Optex Systems Inc.
V.E. Enterprises Inc
W. Soule & Company
Manufacturing Today - Summer 2010