When the chips are down, how do we defeat the pain of pricing?
“If you build it, he will come” doesn’t work for the semiconductor industry. And for their manufacturing customers, that field of dreams where you carry no inventory and offer short-term flexibility, is likely disappearing. As industries such as automotive ponder their next moves and the semiconductor industry struggles to keep up with demand, all players will need to become partners and align their short-term and long-term pricing strategies to come out on top of the supply chain disruption as successfully as possible.
It’s time to prioritize your next move, not throw in the towel.
If carmakers re-think just-in-time ordering and commit to contracts that can’t be canceled they can develop a win-win situation with chipmakers and their own customers. This will require pricing strategies that work for everyone. Many large companies understand this way of doing business and are making the move today. Even in the automotive industry a few have already accepted the proposition. Toyota is already a step ahead, which is ironic given they were the pioneers of just-in-time ordering. With data in-hand, Toyota made the strategic decision to purchase a large enough inventory of chips to return to pre-pandemic profitability. In the short term, Tesla’s pricing strategy is to pre-pay for inventory to secure stock and lock in pricing. Long term, they are considering buying their own foundry.
Now more than ever it’s important to think differently and creatively to drive better pricing. Fabricators are raising prices, so there’s no longer discussion on price. Now the discussion is: how much more are you willing to pay?
No magic formula needed
Better pricing is developing a framework to collect the right data and identify what strategy is appropriate in what context.
We know that rebates and cross-selling strategies drive better pricing. Rethinking your pricing structure for design registration is another way to make a significant shift. You can drive better pricing by tying pricing and discounts to the complete design. When electronic components are designed, registered with a supplier, and the design is supported, the manufacturer can give the distributor a preferential buy price so that the savings pass on to the customers. Using rebates to ensure the full design is purchased is another consideration that will drive better pricing.
Line of sight is crucial to your winning strategy
Pricing in the semiconductor industry is developed more scientifically compared to other industries such as consumer goods and healthcare. The objective is to find the right strategy for the specific product category. Determination to win at building a stabilized relationship and eliminating some of the massive industry ups and downs is a significant shift needed moving forward. A defined window of time for supply over a fixed period is a commitment to fabricators that manufacturers need to achieve.
How do you get there? What determines that window of time?
You reach that pivotal point by having the mindset to mine your data appropriately and efficiently, so you understand where you’re at without getting stuck. Doing the soul-crushing work of trying to glue all the data together because you’re working within disconnected systems to appropriately develop a strategy is painful. You create a “swivel chair” effect working through many different tools and systems on multiple screens that consume your workspace. You’re doing this work to win at pricing strategies, and you’ll meet that goal by having one set of data, not four—that you can get from using one tool.
Come out bigger and stronger
Strategic partnerships go hand-in-hand with strategic pricing. As the explosion of electronic devices and demand for them continue, it’s never been more apparent that all companies need to adapt by understanding their customer and building value beyond pricing.