Top 3 Pricing Trends for 2024 (and what to do about it)

How confident are you in your portco’s pricing plans for 2024?

It’s a question we’ve posed to many audiences lately, and the responses have been tepid at best. Why? For many reasons, but most can be traced to the heightened level of uncertainty in seemingly all aspects of business and the economy these days.

While we don’t have a crystal ball, there are 3 clear pricing trends emerging for 2024 that companies would be wise to proactively prepare for, building capabilities and organizational resilience to be ready for what lies ahead. It may seem daunting, and uncertain, but one thing is certain - accepting the status quo on pricing won’t improve your odds of success in the year ahead. As Benjamin Franklin so adeptly put it, “By failing to prepare, you are preparing to fail.”

With that, let’s break down the top 3 pricing trends of 2024 so that you can plan accordingly.

Trend #1: Persistent Cost Volatility

Odds are, your portcos are very aware of all input costs that impact business profits. But if it feels like staying on top of changes in these costs (never mind forward-looking projections) has become increasingly complex, you’re right. Because the pace and severity of cost volatility has increased considerably in the past few years, and it’s a trend that will continue in 2024.

Whether focusing on key material input costs like lumber (example below), copper or paperboard, or other factors such as labor wages (example below), energy prices or shipping rates, all have increased volatility 2x in the past year compared to the pre-pandemic period.

Produce Price Index by Commodity: Lumber and Wood Products; Lumber

Employment Cost Index: Wages and Salaries for Private Industry Workers in Manufacturing: Production, Transportation and Material Moving

Why is this volatility a challenge for pricing? More frequent, targeted, and efficient price updates will be required to keep margins stable and growing, and throughout the course of 2024 most portcos are likely to experience a variety of different input cost scenarios to navigate.

Trend #2: Macro Trend, Varied Localized Response

We’re all hungry for more data and insights to inform business decisions. Economic trends are a logical place to start, as demand for the products and services of many of your portcos are likely tied to trends such as population growth, housing starts, employment rates, or consumer consumption (to name a few). While these indices are informative and can create business tailwinds and headwinds, do they really enable you to run your business more effectively week-to-week? No. They do not, because business is increasingly run and won at a local (not macro) level, and local responses to macro trends continue to deviate and vary more dramatically than they historically have.

For example, let's take a building products distributor that has branches across the US. Naturally, housing starts would be a good predictor of demand:

New Privately-Owned Housing Units Started: Total Units

Overall, housing starts have been stable the last 12 months, never fluctuating more than 10% month to month. Seems like this would be easy to manage. The problem? Most of the portco’s customer base is local, and the housing starts trends are far more varied and volatile across local markets. Looking at Nashville, TN for example, housing starts have many times varied 50%+ month-to-month, far less stable than the macros trend. It’s also far less predictable, as directional movement in housing starts in Nashville doesn’t always align with the macro trend.

This is the level of granularity your portco needs to look at the data to make informed decisions on pricing, and this chart is going to look drastically different when you move to the next branch just a few towns over.

New Private Housing Units Authorized by Building Permits for Nashville-Davidson--Murfeesboro--Franklin, TN (MSA)

Why are vast differences in localized response a challenge for pricing? Because it requires a far more granular approach to pricing to win, which compounds the pricing complexity.

Trend #3: Compounding commercial complexity

Odds are, in the pursuit of growth, your portcos have successfully undertaken numerous go-to-market initiatives around product expansion, channel expansion, or customer acquisition (to name a few).

All can be fantastic growth drivers, but each brings a level of added complexity to pricing:

• Product expansion: How do I set the right price for the new products? How do I know when to change them? Can my current systems handle the increased processing?
• Channels expansion: How should we align prices across channels? How do we ensure that alignment holds? How do we know it's right?
• Customer acquisition: How do I set the right price for each new customer? How well are these prices aligned to existing customers, our strategy, and financial objectives? Can I manage all the new price agreements efficiently?
  
  

Each initiative adds a layer of complexity that’s manageable, but still a lot. The real pricing challenge comes from the compounding effect when you stack multiple of these initiatives over time.

Now, it’s no longer just about managing the prices for that new product line, it's about managing those prices across more customers that are buying across more channels.

Why is compounding commercial complexity a challenge for pricing?

The number of discrete pricing decisions explodes.

There it is: the top 3 trends for pricing in 2024.

The next question logically becomes, how best can a portco prepare to handle these trends? Subsequent blogs will decompose the answer in more detail, but your portcos will need to increase their pricing competency in 3 areas to be ready for 2024 and beyond.

If you want to learn more about how Revenue Analytics uses Pricing-as-a-Service to solve and respond to complex pricing challenges year-round, talk to an experienced PE pricing expert.