How to Manage Inflation with Pricing Strategies
Approaching and adjusting your pricing strategy is essential for effectively dealing with the rapid and significant rise in inflation. After all, the current inflation situation is causing quite a lot of trouble for different companies. No matter the type of business you run, you might be looking for ways to tackle the margin erosions while also driving profit and business growth at the same time. If so, you are in the right place.
You might think that prices have increased across the board, but is it really the case? Of course, specific market verticals such as those associated with gas, cars, hospitality, and certain consumer goods are experiencing considerable increases in price. But many other industries see no rise in prices at all.
And as you may already know, the official inflation numbers (from the consumer price index) do not include food and energy. This suggests that we, as consumers experience some of the most rapid increases in prices. As a result, this makes inflation even more severe for some companies in different industries- as is what I gathered from thousands of conversations with company executives over many years.
Should Companies Increase Prices in Times of Inflation?
According to executives, their customers are extremely price-sensitive- even more than they actually might be. As a result, they end up believing that even a modest price increase can largely affect their sales volume and revenue.
Executives think that this will eventually drive customers to their competition. For that reason, the current inflationary situation leads many companies to absorb the cost increases inflicted by inflation and zapping profitability. In reality, they should let off the load bypassing these cost increases to their customers.
Changing the Mindset to Bring Forth a Pricing Strategy
Now that we know how company executives perceive inflation and price increases, how can they change their views? Regardless of what you might think, increasing costs is the only way of dealing with the burdens of inflationary times.
So how should companies think about pricing in these inflationary times?
The Costs are Increasing Everywhere
The first thing that company executives must understand is the fact that inflation affects everybody, including competition. This means that all other companies in the same industry are much more likely to go through similar difficulties. Eventually, all companies in a particular industry must raise their prices to cover cost increases. This is for one simple reason: the current prices are not profitable enough or profitable.
As a business executive, you must understand that losing your entire business is not possible, as you might fear. This works in both inflationary times and non-inflationary times. As price increases become legion in every market, it becomes the tide that raises all boats.
Customers Expect Prices to Rise
In inflationary times like now, customers are quite well-informed regarding the increasing costs across the nation and worldwide. As inflation continues to be so well-published with all of the news media's focus on it, customers expect prices to increase.
This means that they are less likely to change their buying habits or preferences based on price. This suggests that now is the best time, if there ever was one, to increase prices.
Inflation Also Offers Opportunity for Growth
It is hard to deny that where there are changes, there are also always newer growth opportunities. This suggests that now is an excellent time to
Reevaluate how the competitive landscape has changed since the company did its last price.
Reevaluate how customer segmentation may need redoing as customer profiles might have changed.
Reevaluate what marketing and sales channels should lead to the highest sales volume at the highest prices.
Reevaluate how marketing can be further optimized to drive higher demand.
Reevaluate what pricing strategy will minimize sales friction and maximize sales at the most profitable prices.
Inflation is a change that you can leverage into increasing competitiveness, more significant market share and higher profitability- but if you use the opportunities correctly.
How Can You Achieve All of This?
Now that you know that inflation brings opportunities, how can you make the most of these hard times? Having an effective pricing strategy is essential to acquiring business growth and success even in inflation. I believe that the best way is to gain a detailed understanding of willingness to pay in your particular marketplace.
But that is not all; you must take the understanding to the next level. It becomes essential to assess what customer profile or persona will lead to the highest sales volume in revenue. This is so your company can conveniently target those specific personas that can yield high returns on your marketing and sales investment.
This will also help you in understanding which marketing channels and marketing messages generate the highest demand creation at the highest prices. You will also gain a clear idea of the kinds of products or service features that are most appealing to customers with the highest willingness to pay.
This and assessing customer profile and persona further helps to understand the sales channel and sales methodologies. These can prove helpful for minimizing sales friction and maximizing sales and revenue.
It also helps company executives to target the customers that are genuinely willing to pay for your product or service in hard times of inflation. And then, of course, you must implement these findings into a revised marketing sales strategy and pricing strategy.
Summary
Your customers expect prices to rise, making it the best time to do so.
The competition that does not increase its price and instead absorb cost increases will have to reduce its marketing and sales expense in order to maintain its profit margins- meaning you have the opportunity to increase its market awareness and competitiveness.
Whenever there is change, the number of opportunities increases. Thus, revaluating how you go to market and market-altered willingness to pay may yield substantial benefits and elevate your company to the next level.
Make sure you develop a good pricing strategy and approach to drive profitable growth in inflationary times like this.
Download the guide to the 7 Easy Steps To Successfully Increase Prices
Contact a pricing consultant to fix your pricing issue today.
Download our Guide to the 7 Easy Steps To Successfully Increase Prices.
