How To Develop An Effective Adaptation Price Strategy During Inflation 🏷️
It has been a challenging time for the past two years with the shortages in supply exacerbated by the fact that we’re emerging from 2 years of the Covid-19 pandemic, a cold winter spell, the Ukrainian war, and the effects of geopolitics that worsen the prices of basic necessities. So, we ask what’s your adaptation to your price system amid inflationary pressures?
In this article, we discuss what your pricing system should look like as rising prices in the food, housing, and electricity market keep breaking records. What can you do besides passing on the price hikes and elevating costs onto your customers? At Taylor Wells, we believe that strengthening customer relationships requires more than merely looking at the current situation as a numbers game. As energy retailers in Australia continue to collapse and more customers are asked to switch to other providers.
We argue that identifying and addressing customers’ pain points not only will protect your margins but bring in more revenue opportunities. Raising prices as a coping tool and mechanism can be fatal for a business in terms of sales and customer relationships. By the end of this article, we show you other key areas and actions that you should look into when it comes to your pricing system.
What is an adaptation price strategy?
Price is more than just reflecting the value of your products and services. It can pique clients’ interest and is an excellent promotional tool.
However, if you want your business to flourish, you must understand the subtleties of the changing industry and shifting customer behaviour. This way you can devise price plans that best fit your customers. A pricing adaption strategy can help you in accomplishing this. You will be able to adjust your pricing models to meet various geographic regions, customer preferences, and existing budgets if you have an effective adaptation price strategy.
Adaptation to Price Adjustment Strategies in 6 Steps
The consumer price index worldwide, for instance, has risen to 9.2% in March this year. As a business, if you want to stand out in the market, you need to look beyond prices including the quality of your products/services, after-sales management or customer satisfaction, supply chain or inventory and labour shortages.
1. Adjust your adaptation to price discounts and promotional offers.
The downside to frequent discounting encourages your customers to engage only during promotional periods. During inflation, price increases are inevitable. However, businesses that focus on product profitability are more likely to rise above inflationary cycles than those that focus on costs which restricts the impact and frequency of price rises.
These businesses frequently incorporate a pocket-price-waterfall strategy into their pricing and revenue-management plans. This can assist them in maintaining a strict, value-based margin level, limiting unneeded erosion, and precisely estimating the income received from each transaction. With such tools, businesses can actively retain margins during inflationary cycles as opposed to chasing the market.
An Australian manufacturing company, for instance, with limited supply and productivity had high manufacturing costs for some low-volume products. It was unable to meet sudden spikes in demand. To facilitate more effective production scheduling, they increased the lead time on all products rather than boosting pricing. They extended wait times even further for custom products, which had greater gross but lower contribution margins than stock products.
They also instructed sales teams on how to explain the new service levels to clients and persuade them to choose more standardized options. Overall productivity increased, as a result, maintaining margins without raising prices.
2. Maximise your customer’s value drivers or non-price leverage
This can be done by taking your customer’s feedback and using this information to your advantage. What are their comments in terms of product and service quality? What opportunities can arise from their feedback that you can use to cross-sell or upsell your services? You will also need investment in technology, automation, and digitalisation. These are meant to retain customers and gain their loyalty.
3. Implement the art & science of adaptation to price change and adjustment strategies
The art and science discover what’s behind your customer’s willingness to pay. What are their value drivers? Disciplined pricing that prepares for future growth needs you to reexamine how your customers react to price changes. Some are price-sensitive and some are more value-driven as long as you’re able to justify your price increase in terms of product/service quality.
Successful companies typically base their price increases on the profitability analysis of their customers, willingness to pay in comparison to a similar peer group, and the margin performance of a product or service level anticipated from the price change. While maintaining competition on key-value items, for instance, a company may pass on the majority of its cost increases through secondary and tertiary items that are less price-sensitive for consumers.
It’s a known fact that businesses, even in B2B settings, have been using personalisation technologies to cater discounts to customers who belong to the price-sensitive group. In this way, businesses make smarter pricing increases or adjustments based on customer willingness to pay and product differentiation.
4. Aggressive decision-making in your adaptation to price adjustment strategies
Crucial decision making is also best implemented between cross-functioning teams in marketing, sales, and pricing managers. In this way, they are enabled to work together more cohesively with better information, data analytics, and interpretation.
Pricing teams can also experiment with various pricing strategies to develop:
- a real-time picture of consumer reactions
- monitor the effects of price changes throughout the portfolio
- and modify future prices as necessary
A Sydney-based manufacturer, for instance, has held off on price increases with some of its biggest clients for a number of years. It was mainily out of concern for customer and sales volume loss. On the other hand, passing on the rising costs to smaller customers wasn’t ideal either.
So, to re-emphasise to the clients about the value that the company offered, it also devised a pricing strategy based on market conditions, data, business reviews, and performance. In this way, it enabled them to raise prices without sacrificing customer relationships and loyalty. It also prepared them better to address future price pressures.
5. Ask yourself, what else can you do to reduce your costs?
This step requires you to re-examine the value that you offer to your customers and reimagine the value drivers and opportunities that you can unlock. Of course, this process will require efforts from your research & development.
Furthermore, the sales team should be specifically taught pricing instructions when it comes to each customer and product category. Moreover, you need to re-emphasise the reasons why prices are spiking. For instance, that includes the cost of goods, supply-chain disruptions, operating expenses, and how these affect your company overall.
6. Tireless & resilient execution as an adaptation to your price adjustment strategies
Resilience and consistence calls for a management team that supports talent development, coaching, and learning that regularly evaluates the overall performance of cross-functioning teams from sales, marketing, and pricing. This ought to be done in a way that supports customer feedback. It should also enable you to optimise and analyse pricing recommendations as you communicate your value and brand proposition.
Developing a set of indicators by coupling analytical models that forecast the impact on margins and help direct pricing decisions is crucial. This includes cost trackers and indicators, competitor’s activity on high-demand products, and research on customer reactions to price adjustments.
Establishing a data infrastructure that strictly executes and tracks performance or transparency. It also creates a performance culture that will endure far beyond the current or the next inflationary cycle while providing the pricing data needed.
Inflation is a scenario that all businesses will deal with from time to time. What is crucial is how you respond to the challenges. You’re not resorting to quick actions that turn out to be short-term solutions. That includes recklessly passing on higher costs to your customers and not communicating it to them properly.
Withering through price hikes, supply chain issues, and labour shortages allows you to anticipate and manage what’s ahead. It also helps you execute with better informed decisions. Businesses that use data and analytics to study important indicators, rising stock levels, and keep an eye on prices and consumer behaviour quickly find solutions before their rivals. They’re also able to monitor dynamic elements that help them be better prepared to manage inflationary pressures.
For a comprehensive view on integrating a high-performing pricing team in your company,
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at email@example.com if you have any further questions.
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