At this point, many executives have learned not to implement price increases across the board for all of their offerings. Short term grabs can have a negative impact on long-term partnerships, and no customer wants to feel nickel and dimed. Especially in the face a potential recession when cost cutting is rampant.
That begs the question: How do you know when to push and when to hold? A company’s pricing power plays a major role in this decision.
Explain it to me
There is always a line in volatile markets where customers will start looking for other solutions. It’s typically on the third increase in a short period of time where customers will get price sensitive, but some companies have less room to make that kind of change. To learn that threshold, it’s important to understand your pricing power. Said another way: What is your ability to raise prices without impacting the demand of your product/service?
For many sectors, given pent up momentum from the pandemic, demand is still strong. Also in our favor in the B2C context, salaries (and therefore buying power) have increased. Customers are smart, and they understand companies are struggling with rising input costs. Paying more due to supply chain or labor issues is mostly understandable—for now.
However, problems arise when companies take advantage of this time with blanket increases, unfair or frequent changes, and the dreaded greedflation that can antagonize customers.
Playing the long game
Pricing power is not about a company’s ability to force pricing (short term thinking), it is about building trust through value that will last through both good and tough times (long term thinking). Understanding the value you provide to your customers is critical, and in a recession, companies must find ways to expand their portfolio to provide that value at different price points. Each offering and customer may need its own approach depending on your costs and demand levels, and particularly in volatile times, it’s important to keep your customers within your four walls.
Pricing is a huge factor in partnership and trust, and those who do it right will earn the right to get more from their pricing.
