The Hedging Corner: Pricing choices to win customers

07/07/2011

Hedging tools such as resins futures (discussed in last week's Hedging Corner) provide means to protect manufacturers against higher resins and other raw materials costs, but may also be used to protect customers - existing and prospective - against higher costs. For manufacturers with spare capacity or bidding on contracts, explicitly protecting customers against higher costs means providing product pricing choices. Pricing choices increase the likelihood of winning new customers through marketing efforts or contract bidding without sacrificing profit margins.

Manufacturing is highly competitive and, in order to compete, manufacturers must deliver products on time (reliability), meet or exceed product specifications (quality), and be customer-friendly (service). Most customers now expect those characteristics, so manufacturers aren't necessarily rewarded with new business for having them. So what's left for manufacturers, particularly contract manufacturers, to do to win new business? Many have decided they must offer the lowest possible price, even to the point of sacrificing profits just to stay in business. (Others just give up.) Yet, even offering the lowest price among regional competitors isn't enough to win new customers when competing with Chinese and other manufacturers who possess labor and other cost advantages. So is there anything U.S. manufacturers can do to win new customers, and retain existing ones? Yes. Offer customers product pricing choices.
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