More About This Episode
The Smarter Building Materials Marketing podcast helps industry professionals find better ways to grow leads, sales and outperform the competition. It’s designed to give insights on how to create a results-driven digital marketing strategy for companies of any size.
Porter Thomsen is the Director of Innovation and Insight at American Woodmark. He talks with Zach about the importance of pricing and creating a pricing strategy and identity that works with your building materials business goals and objectives.
Falling In Love With Data
Porter started off as an engineer in the aviation/aerospace industry until he realized he liked solving business problems more than technical problems. He was able to pivot his career and moved into B2B hard manufacturing, where he did hard marketing analytics. He covered marketing trends and data, analyzed where the industry was moving and then helped bring that into strategy conversations.
Six years ago, he moved to American Woodmark, a cabinet-making company with over twenty brands under their name. He now works on special projects and strategic initiatives, bringing data information to find new opportunities, new businesses, new products, new areas of the market and sometimes simply improving opportunities in the existing areas of business.
American Woodmark uses its multitude of brands as a way to connect with the right audiences in the market. Porter uses the information from each brand to understand better how they present themselves to that market. “It’s driven through that customer focus,” he explains because each brand has a specific target audience.
Pricing Strategies: An Overlooked Part of Marketing
One of the most overlooked parts of marketing is pricing strategies, which can be a powerful lever that can either increase or decrease demand for your products. It's a crucial aspect of your marketing mix that can heavily impact the success of your business.
With American Woodmark’s many brands, “the challenge for us is finding that right point that's acceptable in the channel — the way that they do business and for the audience that they're targeting, and that ultimately allows us to achieve our goals as an organization and reinvest in the business and build a new program, solve new problems for our customers and continue to be a good partner for them over the long run.” In a nutshell, it’s about being intentional rather than reactive.
Cost is a huge conversation right now for manufacturers. As Porter puts it, “being a manufacturer is expensive right now. It doesn't matter where you're doing it, what part of the world, what part of the U.S. — it's expensive right now.” What manufacturers need to do is be intentional and consider:
What are the key drivers?
What are the goals and objectives of the organization overall?
How can you create a framework for pricing decisions?
Do you have a plan for how your organization can move forward together?
There’s no one right way to handle your pricing strategies. Any strategy can work if you put thought into your plan and ensure the entire organization is aligned.
Your framework will probably become more complicated as your company gets bigger. You need to consider your cost inputs, margin and overhead and ideal profit on a base level. But many big manufacturers also consider a value-added strategy, meaning what value does the market place on the product or offerings we are packaging together.
To find that out, ask your customers. “You could see what their willingness to pay for things is. You can run tests as a manufacturer, maybe taking small parts of your business that won't be as impactful to see what is the willingness of the market to take additional price or maybe to take price reductions to help you move more volume. There's lots of different approaches, but every organization needs to have an identity around it.”
If you have multiple brands, like American Woodmark, you may have multiple types of pricing strategies. For their more custom brands, they have more custom pricing because they price based on the unique circumstances of each customer. For more standard brands that have more structure, repeatability and consistency, they have consistent pricing.
No matter the strategy, you need to know how you are going to execute and deliver pricing to your customers. You need something to trigger a decision, such as a committee or a process that includes data or milestones.
And lastly, you need a high-level authority who is ultimately responsible — a person who will make the final call and be accountable for that pricing. Once that pricing is set, the entire organization needs to understand the pricing and the fundamentals that went into choosing that pricing.
Pricing and Identity
It’s important that your pricing works with your identity as an organization. According to Porter, “There's a lot of room for improvement, I think, when it comes to being structured around pricing.”
Look at home builders, for instance, especially the track home, big production builders. They have thousands of projects to manage at one time. And with that, they’re trying to see how those homes affect the profitability of their business while also serving the needs of every individual home buyer in each localized market. This all makes for a messy, complicated pricing strategy.
Again, there’s no single right answer for them, unfortunately.
Pricing Increases and Negotiations
With inflation and the recent economy and price increases have become a standard of business. However, few manufacturers are communicating them correctly. “The last two years, anybody who's telling you that they've nailed the communication on pricing is just lying to you.”
Again, it comes down to identity. “Can you be clear about what type of pricing organization you are?” You need to ensure your customers and suppliers know your “why” when you come to the table to talk about pricing. No one wants to be surprised by a pricing increase.
Especially not the home builders and specialty contractors. “We want them to be successful, but ultimately they're thinking ahead. They're working projects out in the future, [and] they're building that pipeline, and if they don't have some predictability about how and what to expect for pricing, then ultimately, it makes it challenging for them to run and manage their businesses.”
Many of your customers, such as builders, see their margins get eaten when they face price increases from manufacturers. No one wants that, and then you get stuck in negotiations, which can break relationships.
When approaching negotiations, you need to keep in mind the depth of your partnership and your leverage. “There's clearly times when there's more leverage with one party than the other, with rising input costs the way that inflation has been going, there's been more leverage with manufacturers, with vendors on that side of the business than in retailers or the in-home builders and the home improvement industry,” Porter explains.
You should also ensure you have facts and data to avoid conversations from becoming too emotional. “You need to make sure you're not putting your partners in an unfair position. So ultimately, they need the opportunity to evaluate and understand price as it pertains to the customers that they're serving.”
Porter highly recommends that manufacturers stay in tune with what market pricing looks like for their products or for the applications their products are used for. If your pricing increase negatively impacts your partners’ ability to do business because you’re extracting more price than they can reasonably handle, then you’re going to have an emotional conversation on your hands.
“At the end of the day,” Porter explains, “there's just a bit of patience that's involved with this. Even though it is one of the quickest levers you can pull as an organization and create change in the marketplace, everyone needs a chance to absorb the information, process it, react to it [and] start making their own decisions.”
Want Even More Insight?
Porter ends with a few predictions for the next one to two years.
“Certainly home building looks like it's going to come back, but it'll be slow in 2023. Remodel is supposed to show a bit more strength. You're looking at a more challenging year for home improvement. I do believe that pricing is gonna hold up in the marketplace. There are certain commodity materials that have become more affordable over the last few months, but a lot of the costs that have been driven have been manufactured value-added goods, labor, things that don't tend to move the other way, so I think those will mean that manufacturers, vendors, pricing holds up in the market.”
To learn more about pricing strategies, listen to the entire episode here. You can reach out to Porter on LinkedIn.
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