In response to the ongoing pandemic, inflation is putting pressure on companies operating across many industries and countries. While customers can expect fluctuations in prices, suppliers can benefit from a strategic approach for implementing these price changes. In this article, the author presents five tips for adapting your prices to an inflation environment. Craig Zawada is the Chief Visionary Officer at PROS. A widely published author, Zawada is perhaps best well known for co-authoring The Price Advantage, which has been recognized as one of the most pragmatic books available on pricing strategy. He can be reached at czawada@pros.com.

The Pricing Advisor, December 2021

While many countries continue to respond to the uncertainties of the pandemic, suppliers are grappling with supply shortages. As a result, inflation is putting pressure on companies operating across many industries and countries.

In this context, while customers can expect fluctuations in prices, suppliers can benefit from a strategic approach for implementing these price changes. Here are five tips for adapting your prices to an inflation environment.

1. Make Your Organization More Nimble and Agile

In a stable environment, companies have a certain pace at which they review prices. However, inflation forces businesses to act with more speed. As a result, companies need to have the capability to promptly refine their pricing strategy, having both visibility and understanding of their macroeconomic environment as well as insight into their own data, to generate new prices more frequently.

2. Turn Inflation into an Opportunity for Strategic Price Adjustments

During inflation, customers expect changes in pricing. This opens an opportunity for businesses to revisit their pricing strategy and potentially hit reset. While many companies will look to bring customers with very low profitability into a more standard range, they shouldn’t overlook customers who have just “average” profitability. This group typically represents the largest opportunity for price change. It’s important to leverage segmentation and science to determine who they are, how they buy, and how to best move them towards the optimal price.

3. Look at Your Pricing Structure

Pricing structure enables the flexibility to adapt to a volatile cost environment when necessary. This might entail looking at building in pricing adders, up-charges, or surcharges. Another important element is the terms and conditions to allow the company to adjust prices within contract terms. More volatile cost environments require greater flexibility to adjust prices as necessary.

4. Carefully Plan Your Rollout of New Prices

It would be a mistake to think that because customers expect pricing changes, companies can proceed without the strong enablement of their sales team. According to a recent study by McKinsey & Company, 2/3 of price increases end up unrealized due to the lack of strategy, policy, and process support. The positioning of the price change is very important, and companies shouldn’t underestimate or minimize the enablement of the sales team. They need to be well equipped with details on cost changes, relevant data and even receive proper training on how to handle difficult conversations with customers. This phase is critical in ensuring transparency internally and externally so price changes can be well received and accepted.

5. Make sure you have the right systems and infrastructure

In an inflationary period, time is of the essence. Companies that have the right tools and systems in place to make well-informed decisions in a timely manner will perform better. Organizations that leverage Artificial Intelligence (AI) have visibility into customer and product profitability to analyze data more frequently. This empowers them to execute change faster — making them more likely to better navigate through seasons of inflation.

For additional ideas on pricing strategies in times of inflation, we also recommend this article by McKinsey & Company.