Pricing today, a few pointers

The last two years of the pandemic have severely tested many companies and their ability to weather the crisis and implement the strategic and operational changes necessary for survival (we have already discussed pricing strategies in times of crisis here).

Unfortunately, 2022 also looks like a difficult year to read, not least because of the Russian-Ukrainian conflict, and the consequences for companies in some sectors could be even worse than those of the pandemic.

In an attempt to stem the global crisis and avoid persistent recessions, central banks and governments have flooded countries, and indirectly companies, with an influx of liquidity to provide the resources needed to cope with the crisis, leading to an inflation rate not seen for some time and leading to a rise in commodity prices. Inevitably, the current conflict is also contributing to the situation, which will give a further boost to prices, especially energy prices. Taking a few examples from the front pages of all the newspapers, oil is now close to its 2008 highs and gas is at over $200 per MWh. These increases inevitably have a knock-on effect on companies’ production costs.

Pricing today, the strategic choices of companies

Companies are forced to make choices because of this increase in production costs and must find the best compromise between maintaining high margins and preserving market share. The foundations of economic theory state that one of the main characteristics a company must have to maintain a dominant position in the market is commercial agility. In a highly volatile environment, companies that manage to evolve and change their pricing and sales structure quickly can reap significant medium- and long-term benefits over their competitors.

Being agile means being able to change your offer and sales lists quickly, anticipating demand or adapting to its sudden changes. As can be expected, demand during these periods is highly variable, which means that there can be peaks in demand as well as periods of stagnation within a limited timeframe. This means that there can be peaks in demand and troughs in demand within a limited timeframe, as well as periods of stagnation. This is why it is essential to make decisions in real-time, without waiting for quarterly or half-yearly reports.

Pricing today, the watchword is ‘flexibility’.

Furthermore, it is important not to focus too much on past decisions. The situations and variables involved can be very different, so it is good practice to take a fresh approach, assessing the situation as analytically as possible and relying on tools that can predict the impact of these choices.

These concepts of agility and flexibility just described should be a mantra for all business functions during a period of crisis, starting with design and production, to be able to intercept changes in customer needs so that, where necessary, products can be modified to satisfy consumers.

Revision of production lines or, simply, an increase in raw materials, force companies to increase, at least partially, their prices to the consumer. When an increase is passed on to customers, it is important for the company to decide the right timing, the size of the increase and to support the change with proper communication, capable of making the rationale behind the changes understood. In this presentation, we have provided some advice on how to approach correctly a new pricing strategy.

Finally, a change is also required in the sales force, trying to reduce the intermediation chain and increase margins by focusing more on the online market.

These characteristics should be at the core of every company in 2022, but they are even more important in the current situation because they could make the difference, not only in gaining market share, but in the survival of companies.

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