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…)