3 Pricing Mistakes in Inflationary Times and How to Avoid Them
Navigating the complexities of pricing in inflationary times can be a daunting task. With over 25+ years of experience leading global pricing teams through some of the most challenging economic environments, I’ve observed common pitfalls that can derail pricing strategies. This article highlights three prevalent pricing mistakes companies make during inflationary periods and offers practical solutions to avoid them, ensuring your pricing strategy remains effective.
1) Repeatedly applying the ‘Peanut Butter Spread’ approach increase after increase
The “Easy Button” approach in pricing entails implementing blanket increases across all products based on projected cost rises. Companies typically evaluate high-volume products against key competitors and then apply a uniform “Peanut Butter Spread” price adjustment to the remaining product categories. In the rush to respond to new cost inflation, this method may seem the most straightforward and logical. However, it fails to consider several important nuances, as discussed below.
Where the ‘Peanut Butter Spread’ approach can go wrong:
- Loyal brand customers will start to shift down to mid-tier, lower priced products.
- Competition is more surgical, leading to widening pricing gaps causing a loss of market share.
- Price gaps drive sales to ask for more off-strategy discounts causing more work and frustration from customers & channel partners.
- Customer pushback when inflationary pressures ease, some customers who initially accepted broad price hikes may start to push back.
Key to Success:
- Build flexible, dynamic price management infrastructure with improved data wrangling and cross-functional analytics teams.
- Develop market intelligence capabilities via web scraping and point of sale data & analysis.
2) Giving sales more flexibility to stay competitive
A common mistake is giving sales more latitude to negotiate, which often results in less effective price increases. Fearing a rapid loss of market share, companies may be more open to negotiation. This strategy sends a message to salespeople that there is a lack of confidence and commitment to the price increase. This leads to a wider dispersion of prices for your products in the market causing customers to perceive your prices as lower and undermining your pricing strategy.
Keys to Success:
- Keep your cool and stay confident in your price strategy.
- Closely monitor the effectiveness of the price increases by gathering and sharing market intelligence including competitive response and Point of Sale (POS) data
3) Not being prepared for continued volatility
The most common problem is not being prepared for inevitable market volatility. Welcome to the new age, where absolute stability is no longer the norm. The dynamics of costs, market changes, and competitive reactions create a less predictable environment.
If you are not prepared for these dynamics, you will become a follower and potentially fall victim to those who are strategic and prepared. Over time, it will be an ‘eat or be eaten’ environment, with winners being proactive in monitoring, assessing, and acting decisively.
Keys to Success:
- Build a proactive pricing function that monitors, assesses, and drives better decision-making processes.
- Make pricing a strategic lever that has executive attention and support.
Conclusion
Navigating pricing strategies during inflationary times requires more than a reactive approach; it demands a nuanced, proactive, and well-informed strategy. Avoiding common pitfalls like the ‘Peanut Butter Spread’ approach, overly flexible sales negotiations, and unpreparedness for market volatility can safeguard your pricing strategy and ensure sustained profitability. By partnering with experts who understand these challenges, you can implement the right solutions and keys to success.
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Profit Drivers is a global consultancy specializing in price and margin excellence. Guided by seasoned pricing practitioners with decades of experience, we deliver unparalleled expertise to drive success in today’s dynamic landscape. Our mission is to empower clients to drive profitability and revenue growth by optimizing people, processes, and tools.
We have the solutions and keys to success to help you navigate these challenging times. Ready to transform your pricing strategy? Contact Profit Drivers to learn how our tailored solutions can help you navigate inflationary pressures and drive sustained profitability. Let Profit Drivers be your partner in achieving pricing excellence.
