Hand sanitizer selling on Amazon for $149 and facemasks going for $250 on eBay? Tickets on Air Alaska for $20 and a 22-night tour on Norwegian Cruise Line for $489? These are just some of the extreme examples of two opposing pricing dynamics as the COVID-19 emergency spreads across the world economy: gouge if people are desperately seeking your product, slash when your service is the last thing they need.
Behind these drastic cases, and the justified public outcry against anyone exploiting fear and health concerns for financial gain, lie valuable lessons for all businesses as they navigate pricing strategy through the global health crisis—and a bona fide opportunity to emerge stronger when normal conditions return.
A time like this will force business leaders, even those not directly affected by COVID-19, to adapt to a consumer who is both more vulnerable and more aware than usual. For this reason, it provides a unique opportunity to reinforce the customer relationship and reaffirm your company’s core values of transparency, clear communication, and compassion. But beyond this, such a moment of heightened attention is a chance to challenge your own pricing and marketing practices, and even to take a deeper look at the fundamentals of your business.
Let’s return to the travel industry. Airlines large and small are of course being hit hard, with flights cancelled, customers demanding refunds, and future bookings virtually frozen. For some, the response in pure pricing terms has been a race to the bottom: American Airlines’ Paris−New York roundtrip ticket for $278, Lufthansa’s Frankfurt−Paris flight for €87, Frontier Airlines’ New York−Miami flight for $51.
At first blush, steep discounts like these might seem the sensible path: strengthen ties with regular customers and lure in new ones tempted to take advantage of rock-bottom prices. Yet experience has shown that for companies selling perishable goods or services in a period of crisis, short-term pricing mechanisms will ultimately show little to no effect beyond normal demand fluctuations.
A similar dynamic plays out in B2B markets, where customers tend to postpone capital-intensive investment decisions, like the purchase of machinery equipment, during a sudden downturn. Thus, an instant steep discount is unlikely to overcome buyers’ fundamental uncertainty and therefore will change little in terms of sales. Better to partner with them to keep existing equipment running and bundle/package both nondigital and digital offerings such as upgrade kits.
A better option for companies in an industry bound to suffer during a downturn is to find other ways to enforce brand loyalty while absorbing plummeting demand. That means communicating proactively, facilitating exchanges, and even offering generous refunds and vouchers for future travel. On the flip side, any brand that attempts to exploit the crisis by hiking prices will pay in the long run, especially as the free flow of information across social media further heightens public awareness of the emergency.
So what about more long-term sales relationships, such as repeat purchases and contracting? Fortunately, it’s possible to counter a downturn without price meddling and even emerge better off when business picks up. In the short term, this can be as simple as changing to more affordable pack sizes or adjusting terms and conditions. For example, a logistics provider could offer its B2B customers the option of temporarily pausing contract terms that require minimum volumes to be shipped, rather than lowering rates that are typically hard to bump up later and could ultimately lead to a price war when demand returns.
More broadly, businesses affected by the crisis should take the opportunity to revisit their overall pricing model by leveraging freed-up internal resources. If classical product sales stagnate, why not try subscription- or output-based models that depend on recurring payment and delivery? As with the logistics provider above, customers might not demand an immediate price decrease, preferring a true partner interested in jointly managing the crisis and “co-investing” in mutual future growth.
COVID-19 is the first truly global health crisis that is simultaneously playing out online. For businesses, this may trigger new opportunities to dive deeper into e-commerce, sell services and digital offerings that expand on a product’s current performance (such as over-the-air upgrades or bundled services), and make use of advanced analytics to identify new avenues for cross- or upselling. In China in particular, we are convinced that the “social distancing” practiced during the coronavirus crisis will spur a major jump to B2B online sales and pricing models, similar to what happened with consumer e-commerce during the SARS contagion in 2003.
Finally, there is a hidden medium-term perspective, as economies begin to recover from the effects of the COVID-19 pandemic in the coming weeks and months. We believe demand is going to come storming back in the second half of 2020, and businesses should be preparing now to turbocharge their investments in marketing and promotion. All companies will be fighting to restore their balance sheets, and that will be the moment to make a serious impact in terms of market share by fully optimizing both marketing and pricing. This will not be easy, as the pace of rising demand will vary in different parts of the world. More than ever, data-informed execution will be critical.