Pricing in a Volatile Market

This post originally appeared on INSIGHT2PROFIT.com.

We are in unchartered waters of a global pandemic and macroeconomic uncertainty. In this environment, how should businesses adjust their strategies to best address the unpredictable market?  Are price cuts – or price increases – warranted to protect growth and margins?

Pricing in a volatile market is challenging. Dramatic pricing decisions can have a lasting effect on the profitability profile of a business long after a downturn. Conversely, best-in-class businesses use market volatility to their advantage by identifying opportunities to maintain, and even expand margins and reset their profitability. Now is not the time to overreact. Rather it’s a time when data analytics can help considerably to make informed decisions. With the right strategy, tools and approach, businesses can turn what appears to be a poor market situation into greater profitability and improved market positioning in the long-term.

What To Do

Resist the urge to immediately lower pricing. Impulsive decisions often have unanticipated consequences. If competitors respond with their own price reductions, it could start a price war that will decrease industry profitability across the board and reset the competitive dynamics in the market for years to come. A lower price in the downturn becomes a new normal in the minds of customers and sets new reference price and margin expectations for the business. And when the market rebounds, there’s no guarantee that price increases can recoup lost profitability.

In the same vein, don’t mirror competitor behaviors without a data-driven strategic review. These actions may trigger a race to the bottom all market participants want to avoid. Try to balance the need to stay competitive against implementing a policy that will reduce industry profitability. (more…)

Share this:

3 Areas To Tackle Now For Bottom Line Impact

This post originally appeared on INSIGHT2PROFIT.com.

Several years ago, an Ohio-based specialty metal business made the decision not to charge for freight costs, even though their products were extremely heavy. The rationale? None of their competitors were charging, so they couldn’t either.

In reality, this company was No. 1 in the industry, so all those competitors were actually just following their lead. When the company realized what was going on, it had the opportunity to change the policy for its entire industry.

And so it did—collecting more than $1 million in additional revenues.

Smart companies know pricing strategy isn’t just about the price on the invoice. To have an immediate impact on your bottom line without formally raising prices, here are three areas to tackle first.

1. Freight Costs

If you’ve been operating for decades, your freight policies have probably been in place just as long. Maybe you don’t charge for freight at all, or fees are the same across all territories—or you charge the same as you did 50 years ago even though shipping rates have risen dramatically.

To start, ask yourself: (more…)

Share this:

Pricing Challenge: Actual Versus Plan

This post originally appeared on INSIGHT2PROFIT.com.

Welcome back to INSIGHT2PROFIT’s 2019 Pricing Challenge! Each article covers a common pricing challenge faced by businesses and provide some tips to help improve your profitability.

 

Now that we’re about halfway through 2019, let’s talk about the plan you set for the year. How have you performed thus far relative to your plan?

If your performance hasn’t matched your financial projections for this first part of the year, what happened?  Maybe you’ve looked at your financial reports, and you see that your customer or product mix isn’t what you were expecting, or that you have been impacted by tariffs, and your profitability has suffered because of it.

That’s a start – having a rough idea of the shortfall – but you need to get to the root causes. Has a shift in your mix driven down margin rates? Are you falling short of plan due to a volume slowdown, or are pricing shortfalls eroding your revenue growth? How does that vary by market segment or by salesperson?

Analyzing the gap down to the customer-SKU level can yield clear, actionable intelligence about your problem. Well-run businesses have a strategy, and the budget is the road map to execute it. Planning at the same level of granularity as your sales allows for a healthier understanding of what’s happening within your business, why, and how to act. By having a detailed budget, you are creating a source of accountability for your team and a path for success for your business.

Accurate revenue planning and measurement is tough to do, but it’s one of our specialties. Every engagement includes strategy, a client-specific model, a detailed plan and road map to execute it, and measurement to achieve the set goals. All while leveraging our DRIVE technology platform.

To learn more about how your company can improve results for the remainder of 2019, schedule a time to talk to one of our profit experts today.

What’s your pricing challenge? Talking about pricing challenge, with tariffs ever present in the news, you may want to download our 3 Steps to Navigating Tariffs Guide.

Share this: