Surging prices across the globe are pressuring and forcing businesses to increase prices in an economy where the consumer’s purchase power is decreasing. This paradox in today’s volatile market is very different from circumstances in the past as purchasing power is lower than ever.
This situation puts Marketing and Financial Managers in a major dilemma, where they face the risk of diminishing their market share behind the ratio of price increases.
In light of these dire circumstances, the *ADAPT framework can support your pricing decisions to navigate inflation.
1. Adjust Discounting and Promotions, and Maximize Non-Price Levers
By utilizing a holistic approach to assess where all your company’s expenses are going, you can then discover revenue opportunities in areas that aren’t directly related to the price of your products. This way you are absorbing the price increase via productivity, different discounts, surcharges, taxing, etc. As an example, Company A can remove nonperforming SKUs from trade channels and that would reduce cost and increase distribution efficiency.
Another method Company A can do is to increase the cost of extra services such as express delivery.
2. Develop the Art and Science of Price Change
By tailoring your prices for each target segment you ensure customer value. This is done by measuring how price-sensitive customers are to specific price points with data analytics and predictive models. By doing so, you can easily retain your sales margins by assessing the willingness to pay for specific SKUs from your brand.
3. Accelerate Decision-Making Tenfold
Because we are in inflationary times, we need price decisions that can react to everyday price changes. By utilizing a market simulator or business platform you can check how the market changes monthly to cope with ongoing inflation. Planning long-term price management decisions is no longer relevant in today’s market. Now is the time to be highly responsive with your pricing decisions or whenever action is necessary.
4. Plan Options Beyond Pricing to Reduce Costs
The goal is to redesign the products to reduce costs. This includes line optimization, inventory management, and even supply chain management. For example, Brand A changed some of the ingredients of their product which would greatly reduce production costs. To ensure that the value of their product is maintained or increased, they conducted consumer research and analytics to see if customers notice the difference. If customers don’t notice the difference (or even have a positive reaction to the shift) that’s when you know you’ve succeeded in reducing costs.
5. Track Execution Relentlessly
By being vigilant and monitoring your brand’s performance across costs, sales margins, competitor reactions, and consumer reactions, you will be able to assess what actions you need to take next. Data analytics can help support your brand by building business decision platforms that can help you navigate pricing inflation and feedback in a volatile market.
New price management decisions are based on looking at your business holistically so you don’t have to actually increase your product prices and risk losing your customers.
*This 5 step framework is based on Mckinsey’s ADAPT framework and Marketeer’s business expertise*