How to Price Effectively During Elevated Inflation

2022 was a wake-up call for pricing owners everywhere. With 40-year inflation highs in the US and the UK, and rates of 12.8% in Italy, 11.6% in Germany, and 7.1% in France, pricing as usual went out the door. Just as COVID-19 ushered in the need for accelerated agility, record inflation has done the same when it comes to establishing and adjusting prices.  

Pricing in tune with product costs, competitor prices, and customer willingness to pay is the key to surviving – and even thriving – during peak inflationary times.

Entrenched inflation pressures persist

While the world has experienced skyrocketing inflationary periods over the years, we now find ourselves navigating record-high and more frequently fluctuating inflation. Entrenched inflation pressures are proving to be a clarion call to pricing stakeholders across industries. Though companies are accustomed to adapting their pricing to account for inflation, we’ve entered a new era of inflationary impacts.

In the past, it was common to implement minor price changes once per year using a predefined approach. Now that exercise has become more erratic and frequent throughout the year. Simply put, adjusting for unusually high and changing inflation rates is now a regular – yet unpredictable – exercise for pricing owners. In other words, it’s incredibly time-consuming trying to keep pace with pricing optimally during inflation.

Pricing with agility maintains profitability

Not adjusting optimally for inflation is not an option as businesses must update their prices regularly to account for frequent cost increases. However, misguided pricing during inflation can seriously damage a business… to the point where it may be hard to recover. It’s risky to allow product prices to increase directly in line with costs – or to apply blanket increases across all products and customers without taking into account customer willingness to pay. Though this is the easiest model to implement, it can result in prices that prove unpalatable to customers and unviable in the market.

In line with the need to optimize prices during times of heightened inflation, we recommend a granular approach to pricing according to the framework below:

This approach guides pricing owners to effectively analyze, act, and adapt, centering their pricing strategies around costs, competitors, and customers:

• Analyze: During inflationary periods, the key is to track pricing-related data granularly.
• Act: It’s now a must to adjust prices in line with costs and customer willingness to pay.
• Adapt: The framework is invaluable when it comes to continually adapting prices to changing market dynamics.

As you analyze, act, and adapt, your company will be best served by embracing a collaborative approach to pricing.

How a next-gen pricing solution can help

In order to price granularly, you need the mechanics in place to make changes with ease by adjusting a manageable number of pricing levers aligned to costs and customer willingness to pay. While this is essential to protect margins and sustain profitability, it’s too time-consuming to undertake manually on a daily basis for every SKU. For increased efficiency, we recommend automating wherever possible — and this in turn will allow you to focus on more strategic pricing decisions. That’s where a price optimization and management platform like Pricemoov comes into play. With it, you can:

• Centralize your data and access real-time insights to make accurate and timely pricing decisions
• Manage all your prices in one place simply and efficiently
• Optimize your prices with powerful data science and end-to-end automation
• Deliver prices to any channel or system seamlessly
• Monitor and analyze your pricing performance for continuous optimization
• Collaborate with all pricing stakeholders in your organization on a single platform
• Enable your sales team to win more deals at higher margins

Download our Pricing With Agility: How to Protect Your Margins During Heightened Inflation ebook to learn how to implement a pricing framework that empowers you to navigate rising inflation effectively. You’ll discover strategies and tactics to optimize pricing in the context of costs, competitors, and customers, paving the way for success during times of economic uncertainty.