Current conditions are putting businesses between a rock and a hard place when it comes to pricing. With inflation raging, it would seem like the time to raise prices and protect margins, but a likely recession on the horizon threatens to pull the rug out from under consumer demand. How can companies come up with the right pricing strategy for this complicated environment? This isn’t a time for guesswork. This is a time for data and insights.
The Fed’s battle against inflation is in full swing, and it will likely lead to at least a mild recession as the cost of borrowing spikes. With consumers feeling the pinch in their wallets and the chill in their portfolios, any price increases are likely to be noticed in a way they wouldn’t be during boom times. At the same time, the extended supply chain nightmare and inflation in material and labor costs have eaten away at profit margins. Many companies have eaten extra costs for a while now, but as those costs continue to rise, they may not be able to hold the line forever.
So here you are, trying to figure out your pricing strategy for 2023. Do you raise your prices? If so, by how much? Do you begin to discount to keep sales volume up as consumers grow more budget conscious? Do you think about scaling back service levels or product sizes (the reviled “shrinkflation” phenomenon)?
There’s no single “right” answer. The optimal strategy may be different for every company. That said, there is a WRONG answer, and that is to make these important decisions based only on gut instinct and historical precedent, rather than looking to data to show you the way. Here are three things you must do if you want to find the right pricing strategy:
1. Validate your assumptions or ditch them.
It may be a little cliche to say that “everything has changed”, but everything HAS changed. Supply chains, politics, work culture, international relations. You name it, it’s changed in the past few years. That means you can’t rely on the assumptions that drove your business before.
The first step is to look at your business and your customers with fresh eyes. List out all of the assumptions that guide your current product and pricing strategy, then take the time to revalidate them. Be prepared for some surprises!
2. Broaden your view
Get creative in your quest for pricing insights. Look at your whole data landscape and try to find more types of data that can be incorporated into your analysis. Are there other kinds of competitive data you can add to the mix? What about additional types of customer feedback?
Remember that pricing changes don’t have to happen in a vacuum. They can go hand in hand with changes to the product, packaging or messaging. If you ultimately decide to raise prices, look for ways to increase the product’s perceived value at the same time. If you decide to discount, consider messaging that suggests you are doing it out of love/care for the customer. Either way, look for insights in the data to plot that course.
3. Plan your feedback loops
Unless you’re Ron Popeil, the words “set it and forget it” should not be coming out of your mouth. Pricing decisions are critically important and you won’t know whether they work until they are fully out in the marketplace. Before you roll them out, you should have
A) a solid definition of what success will look like
B) a measurement plan to allow you to monitor and evaluate the success of the strategy
C) a fallback plan in case things don’t go the way you want them to go
Timing is everything here. You don’t want to wait a full quarter to have an idea whether things are going your way. You also don’t want to have a knee-jerk reaction to the first week or two of any pricing changes. What you want is near-real-time visibility paired with the patience to digest that data properly.
Pricing strategy, with its implications for both growth and profitability, will be an incredibly important topic in 2023. To make the best choices, your team has to lean into all of the available data, both before and after pricing is set.
Glymr can give your teams the knowledge and skills to find actionable insights, so you can make the best pricing decisions. Contact us to start the conversation.
