Pricing Strategies During Inflation

Inflation has been on the rise.

The Consumer Price Index increased by 7.5% in January 2022 and is expected to keep growing. In consequence, businesses big and small are struggling with rapidly rising overhead costs.

Quite a few decided to pass it on to customers. Unfortunately, simply raising the prices of your products is not the best option. Used as a blunt tool, it can depress sales, hurt your profit margins, and damage your relationship with your customers.

As a result, business owners get stuck between the proverbial rock and a hard place. In spite of potential negative consequences, increasing your prices across the board might seem like the only way to maintain sustainable profit margins in times of rising costs.

But what if you approached the problem from a different angle? You could treat the entire situation as an opportunity to test a wide range of pricing strategies — ones that go beyond just increased pricing.

Staying Dynamic and Competitive

To get through such a difficult time without any significant issues, you should start keeping a close eye on your competitors and their pricing strategies. If they remain profitable despite inflation, you might be able to copy their formula for success. In contrast, you could use it to your advantage if they make a mistake.

With that in mind, invest in price and availability tracking. It comes in the form of a piece of software that uses bots and historical market data to provide you with relevant pricing recommendations and detailed reports. It will give you a quick and easy way to monitor your competition.

You will not have to do anything by hand. Instead, the tool will gather and analyze the necessary data for you. If a change in the market occurs, no matter how minor, you will know about it. Consequently, you will be able to react quickly and remain competitive with ease and efficiency.

Redesigning and Making Adjustments

Instead of focusing on your pricing policy, modify your sourcing and production process. World-class companies encourage their engineers to reimagine products most impacted by inflation.

They aim to adjust materials, packaging, and even product features to make up for increased production and servicing costs.

Obviously, the products in question should maintain the functionality your customers expect. If the quality of your products drops, your clients will not take it lightly.

On the contrary, your sales figures and brand perception will take a huge hit. In the worst-case scenario, they might never recover.

In case you do not have the capability to quickly redesign your products, make adjustments to your product portfolio. Reduce stock unit complexity, start souring from preferred vendors, and minimize your inventory.

You could also identify product substitutes within your portfolio. Their private-label equivalents might be sold at a lower price than branded products while maximizing your profits and providing your customers with the same or even increased value.

Accelerating Decision Making

Raising your prices in response to inflation will not be a one-and-done move. Instead, you might find yourself dealing with unexpected twists and turns.

In the long run, it can put significant pressure on your organization, causing critical metrics like sales volume and customer satisfaction to fluctuate.

Companies capable of handling price increases well have councils of cross-functional decision makers who can manage price increases knowledgeably and thoughtfully.

They can identify and approve any exceptions to your pricing policies, as well as tell you how to react to market and customer feedback.

In a business-to-customer setting, you can task such a council with testing different pricing actions. By doing so, you will be able to build a detailed view of possible customer responses, track the impact of specific price changes across your product portfolio, and adjust your future prices accordingly.

Adjust Discounting and Promotions

To get through inflationary cycles, you must consistently analyze total product and customer profitability. The pocket price waterfall approach is the best way to go about doing it.

It can add to your revenue-management and pricing strategies if done correctly.

In a nutshell, the pocket price waterfall approach is a powerful tool. It shows you how much revenue you keep from each transaction.

With that knowledge, you can identify opportunities in transaction pricing, limit erosion, and maintain solid profit margins.

In Conclusion

In summary, inflation can be challenging for businesses.

But, it can also create valuable opportunities. It forces you to start paying more attention to market data and find more cost-effective ways of manufacturing products and sourcing various materials.

Moreover, it gives you a chance to work on your company’s internal infrastructure and create frameworks for efficient pricing policies. For instance, you could start relying on the price waterfall approach and use it to optimize your revenue management system.

If your company manages to do the things listed above well, your revenue, profit margins, and customer retention will increase. What is more, you will be better equipped to respond to inflationary pressures in the future.

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