It is said that if you put a frog in a pan of hot water, it will jump out. However, if you put the frog in a pan of cool water and slowly increase the temperature, it won’t sense the change and therefore won’t save itself by jumping out of the hot water. I’m afraid the water will be boiling soon for some of you, and you may want to think about moving before it’s too late.
We were discussing pricing among ourselves earlier this week and debating who was going to face the next pricing challenge. While we all agreed that life for distributors doesn’t come with the laughs it once did, it looks to me like manufacturing is going to be facing some pricing challenges shortly that will be like rafting on the New River earlier this week -white water, expert guide required, survival stakes.
Rising water temperature
Rising input costs are already putting strain on some manufacturers – particularly those exposed to fuel, energy, petroleum and corn prices. The perfect storm is playing out in discrete manufacturers like electronics, as well as in chemical companies for slightly different reasons. Labor intensive industries, particularly in China, are unaffected for right now. However, consumer price increases coming down the pike from manufacturers who are impacted will eventually cause labor costs to go up as people realize they need a raise to stay even. So eventually no sector will be free from impact.
Get a hot water raft
Margin pressure is the relatively obvious outcome. As input costs rise and demand stays relatively flat, increasing pressure is placed on margins. Eventually this will mean that you have to raise prices or change your products and services in response. The time to act is now. Begin slicing and dicing your customer base, market segments, buying influences and pricing drivers so that you have a strategy and customer communication ready to go when the water starts getting hotter. If you wait, you will be trying to correct these challenges at possibly the worst time.