Using Pricing to Manage an Economic Downturn in Any Scenario
September 26th, 2022 (Updated 03/09/2023) | 4 min. read
The True Cost of Supply and Demand: Expert Explores Pricing Strategies in a Downturn
Examine how businesses can help manage prices ethically, strategize product mix, in a downturn
MUNICH and CHICAGO – Sept. 26, 2022 – In a downturn, businesses need to be nimble, defensive, and watch customer spending closely. But there’s nuances to this recession, riddled with continued supply chain issues, a major labor shortage, an ongoing pandemic, and geopolitical tensions. With an uncertain future, a pricing expert from Pricefx, the global leader in cloud-native pricing software, shares pricing strategies to consider as the economy pushes through inflation, and the recession looms.
“We are in unprecedented times and successful businesses will need to move with careful measure, evaluate cost structures and supply, analyze demand for products on the outbound side, and evaluate impacts to margin closely,” said Doug Fuehne, senior vice president, Customer Impact, at Pricefx. “Every industry is different, with many having rapidly changing customer needs. Companies without pricing software often fall victim to not seeing what’s happening, like shifts in demand or profit squeezing, which can cause a downward spiral in a downturn.”
Regardless of where a business or organization falls into the matrix of changing costs versus demand, there’s a strategy to consider for every situation.
- Costs up, demand up: In an inflationary environment where costs go up and demand is up, it can be difficult for large companies to manage the rate of change happening in the market. They can suffer margin compression and revenue disruption as a result. For example, a manufacturer or distributor with 10,000 products and 10,000 customers means 100 million price points to manage so it is imperative to be proactiveand strategic to make rapid price adjustments at scale as costs are changing.
- Costs up, demand down: The economy has been trending toward this model, driven by a recession. Companies in this state must beware of margin squeezing. You may be tempted to lower prices to capture demand, which is dangerous without full transparency of costs across product lines. This is a time to watch closely, beware of slips and revenue dropping. Businesses who aren’t careful and indiscriminately raise prices with costs changes can find revenues falling off the cliff, especially with competitive pressures. In this environment, organizations need to carefully walk the line between demand-focused price decreases and cost-focused price increases. They will need to know where and how much to change based on expected demand and margins. The wrong moves can make or break a business.
- Costs down, demand up: While this scenario is the most ideal for businesses, keep a finger on the pulse of pricing ethically. When demand is up, competitors can obtain market share with lower prices. Businesses should watch these moves closely, understanding where they can stay the course, and where to make strategic changes.
- Costs down, demand down: In a recessionary period, pricing managers and executives will have to strategically lower prices to capture as much demand without losing profit. Lowering prices effectively, with a true understanding of product mix demanded, is critical in this scenario. Is there a product that you can optimize or change to optimize revenue? For example, meat suppliers can respond to a market that once had strong demand for higher-end cuts like rib eye steaks but now desires a product mix with more ground or other accessible cuts.
Pricefx is the global leader in cloud-native pricing software, offering a comprehensive suite of solutions that are fast to implement, flexible to configure and customize, and friendly to learn and use. Based on cloud-native architecture, Pricefx delivers a complete price optimization and management platform that provides the industry’s fastest time-to-value and lowest total cost of ownership. Its innovative solution works for B2B and B2C enterprises of any size, in any industry, in any part of the world. Pricefx’s business model is entirely based on the satisfaction and loyalty of its customers. For enterprises facing pricing challenges, Pricefx is the cloud pricing optimization, management, and CPQ platform to dynamically Plan, Price and Profit.
For more information, please visit www.pricefx.com.
Originally posted on BusinessWire: https://www.businesswire.com/news/home/20220926005270/en/The-True-Cost-of-Supply-and-Demand-Pricefx-Expert-Explores-Pricing-Strategies-in-a-Downturn