Pricing Strategies in Turbulent Times
It's October 2022; Ukraine's war is causing turbulent times. OPEC has just announced that they will reduce the amount of oil pumped by quite a significant amount. The inflation issue is at the forefront of everyone's minds, and there's even talk of a potentially deep recession. So, all in all, it's a troublesome and turbulent time. How does this impact your pricing strategy?
First of all, remember that in turbulent times, everything is turbulent. Everything changes and change can be rapid. Costs are rising, customer buying preferences are changing, and companies may be changing. All of this means that you have to be quick on your feet and you have to be able to adjust. Companies of the mindset that "we set our pricing strategy five years ago, and we're not going to change it" will be on the losing side in this turbulent time.
As everything changes, your company has to change too. It could be that your price levels need to change, it could be that price structure needs to change, or it could be that price bundling needs to change. You may even have to adjust your marketing messages, methodologies, and so forth to adapt to a new situation. The situation may not be static for very long and may change again very rapidly. So, there needs to be an infrastructure and processes to move with the market to satisfy customers' changing needs better than companies with that set-and-forget pricing strategy.
How do you find out what changes need to be made? What we do in my company is willingness-to-pay research. And from that willingness to pay research, we can assess not only what customers and non-customers are willing to pay for the product or service but also what will make them have a higher willingness to pay. This includes specific product features, specific benefit features, and so forth. It includes how, in these changing times, different marketing messages or convenience will influence their willingness to pay and buy. They could now be looking at other purchase channels, methodologies, etc. So, you need to find that out, and of course, some of it you can gain by simply talking to your customers. If you're in b2b, it may be simply calling some returning and friendly customers and talking to them. Even more important than that is talking to people who aren't customers because that is where you lose the sale! It's much more important to know why you lost the sale than why you got the sale. But it is often hard to get hold of those who did not buy. Very few are interested in communicating with a company they did not buy from. That is a topic I explore in another blog post about why NPS surveys (a staple of the customer ratification process) does not work.
If your company is in consumer goods, closely monitoring what's happening on social media may be one way to determine what customers and non-customers are saying about the products or services.
This reminds me of this funny story. Despite the turbulent times, I've decided that I need to get myself a new car. I'm not in a hurry in any way, so I'm probably going to wait until everything calms down. But I started to educate myself and went to one of my local dealers. I said I'm looking for a small but comfortable car. And the guy looked at me, and pointing, he said: how about this full-size extended cab truck? Well, is that small? I don't think so. Is it comfortable? I don't know. But the few times I've been in one of these trucks, it has not been an enjoyable experience from a comfort point of view. How can a company have a salesperson that is so tone-deaf? It's just mind-boggling. So that's another thing to think about in these turbulent times - are salespeople well attuned to what's happening? Do they understand how to listen to what customers really want? Which could be different from what they used to want!
As I mentioned, what we do in my company is willingness-to-pay research. From that willingness to pay research, we can predict sales volume and revenue at different prices, segment the marketplace and advise our clients on what segment will have the highest willingness to buy and the highest willingness to pay, thus, supporting higher and more profitable prices. That segment could be different than before the pandemic, the supply chain issue, the war in Ukraine, and all these other things that generate the turbulence. Likewise, because the customer's situation has changed, there might be a different set of marketing messages and channels more effective in supporting the highest possible revenue and profits. The same with product features and functions because the customer's situation may have changed. Therefore, they may value other benefits, other product features, other service features, and so forth. So, it becomes necessary to know how these many changes affect willingness to pay. The customer may also want to buy differently because their circumstances have changed. It becomes essential to discover the purchase methodologies and channels that will lead you to maximize your revenue and profitability.
So, as there is so much change in turbulent times, it becomes essential to constantly monitor what is going on and how it affects how and why customers buy. What used to work six months ago, a year ago, may still kind of work, but possibly it could work a lot better. The winner will be the company with an ongoing process to adapt to changing times. And like any business process, it needs to be documented, needs resources and budget, needs authority, and needs a feedback loop.
But also don't forget that there are always new opportunities in turbulent times that didn't exist six months ago, a year ago. And suppose the company can uncover those opportunities, which is possible through the willingness to pay research that we do in my company. In that case, you will be the winner in the market, in market share, in profitability, and in shareholder value. And who would not what that?
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