Author: Robert Ribciuc

Evidence of an inflationary acceleration is accumulating. Price actions by industry leaders are both responding and contributing to it. Price increases are a frequent response to inflation. They can range from purely defensive “layman’s pass-thru”, to opportunities for profit growth. This creates profit opportunities for competitors. Whether followers or contrarians, middle market firms must decide which path is more advisable given their competitive strengths, margins profile, and their pricing “culture.” Timing and preparedness matter, as the author explains. Robert Ribciuc, Managing Partner at EBITDA Catalyst, is a pricing expert specializing in pricing for consumer and software brands. He will present a breakout session – “Consumer Brands: Differentiated Pricing in Inflationary Environments” – at the PPS Spring Pricing Conference in Chicago. He can be reached at

The Journal of Professional Pricing, March 2022

Introduction: Consumer Brands & B2C Firms Face Time-Sensitive Pricing Choices

Talk of inflation and price increases is all around us. Giant consumer brand companies are not waiting around to “find out” whether the talk is real; they’re busy planning (and signaling) price increases. What should consumer brands, and other B2C companies facing higher costs do? Do middle-market firms face different considerations from the Fortune 500 giants doing all the “inflation talk?”

In this paper we discuss:

  1. The Inflationary Context – Becoming Self-Fulfilling Prophecy
  2. Inflation as Profit Opportunity
    1. Pricing options for “pass-through” of anticipated cost increases
    2. How “mitigation” and “commodity trend reversal” can become profit centers
  3. Competitive Considerations When Choosing YOUR Approach

1. The Inflationary Context – Becoming Self-Fulfilling Prophecy

“Raisin’ because inflation.” From Warren Buffett to P&G to Coke, giants of all kinds are letting anyone who’s listening know they have inflation on their mind. They are openly advertising a solution: if you can’t beat inflation (and you can’t, they will tell you), join it, specifically by raising prices. Ever since collusion has been illegal, public “signaling” to competitors has emerged as a standard course for industry leaders who hope where they lead the rest will follow.

Inflation and Price Increases Inflation and Price Increases
Steel – 5-year chart Copper – 5-year chart

(See Appendices for price trends of additional commodities)

The Fed is “hedging” its mandate to protect the economy from inflation. Even the Fed is subtly changing the all-important qualifiers in its mandate to “control” inflation. It’s replacing its 2 percent inflation target commitment, and instead said it will “[seek] to achieve inflation that averages 2 percent over time.” Translated in English, the Fed is prepared (or is it resigned?) to let inflation ride at higher levels for a while.  Commodities from steel and copper to oil and cattle are all racing higher (5-year charts, courtesy of Barchart, included in Appendix).

Raisin’ for everyone? For B2C firms, particularly consumer brands, the implications should be clear. The environment signals consistently suggest inflation and support for higher Willingness-to-Pay (“WTP”), with timing pressures:

  • COVID reopening pent-up demand (↑ WTP)
  • Stimulus cash / savings momentarily accumulated in consumers’ pockets (↑ WTP, timing)
  • Commodity and other inflation threatening margin compression (↑ costs, ↓ margins)
  • Supply-chain disruptions and depleted inventories add tailwinds to inflation (↑ risks, ↓ reaction time)
  • Buildup of “reasonable arguments” and “availability bias” in consumers’ mind for an environment in which price increases become “expected” (↑ WTP, timing)

All other things equal, this seems as good a time to consider a pricing action as ever. But are “all other things equal” when the leader in your market (say, P&G) is raising prices 5-10% and some of your peers will just follow the leader? Probably not.

The giants are not going through all this very public signaling work for your benefit. If you’re a smaller competitor, they’d like you to come along so they don’t risk meaningful loss of market share (and they’re betting you, or at least enough of your peers, will). If you’re a consumer, they’d like you to believe they’re so confident everyone will raise prices along with them, you should up your willingness to pay and forget price sensitivity (and price-shopping), ideally permanently.

Don’t let any good crowd momentum go to waste. You have a choice for how to use this guaranteed shift of a large part of the supply curve in your market. Everyone else’s rush to raise prices may be your opportunity to gain significant market share by staying put. At the very least you should be deliberate and segmented in your approach. The giants want to present you with both urgency and a path of least resistance: follow them. DO: take this as a major opportunity to act thoughtfully on your pricing strategy (and update the factual inputs into your analysis). DON’T: become Pavlov’s dog, with your largest competitor running the lab.

Pricing increases tend to dominate the conversation, but smart firms know that even in “normal” times, thoughtful discounting must also stay in the lineup of strategic choices, especially in higher-margin firms or product lines. This environment presents the unusual opportunity of “discounting” by simply staying put or raising less than competitors (and letting your and their customers know it).

For all B2C firms and especially consumer brands, this moment makes a careful consideration of the inputs to pricing strategy an even higher imperative. Consider elasticity of demand, your margins (and economies of scale), the availability of substitutes, and positioning on the value line and price ladder (e.g. where your products are in value/quality delivered, and in price vs. various offers / price points of “competitors”).

2. Inflation as Profit Opportunity

In general, giant firms use inflation to get even bigger. They love phrases like “passing through (higher costs)” that suggest they have no choice and are only protecting themselves from the sting of paying extra dollars to suppliers. In fact, as long as enough competitors come along for price raises, inflation can be a golden opportunity to emerge both larger and more profitable for durations extending long past the (often temporary) cost hit. Here are the levers:

  • “Pass through” the increased costs at a profit (margin break-even instead of dollar break-even, discussed below)
  • Aggressively “mitigate” the advertised cost inflation via power procurement tactics, but increase prices “as if” the full cost hit was incurred (subsection B)
  • Keep the higher prices even if / when the costs go back down (particularly for commodities) (subsection B)

A. Pricing options for “pass-through” of anticipated cost increases

Simplified Illustration: (Industry Leader) Company ABC, inflation and pass-through options.

Note: We show a hypothetical “unit P&L” using a $1,000 starting “unit” price to make numbers nice and round. Most consumer brands’ unit prices will be lower, but you can just imagine a “unit” being 10 fashion items or 100 pet food bags to relate to the $1,000 … it’s mostly the % changes we’re tracking here.

In Scenario A, we see the “Before” unit economics for Gadget XYZ made by ABC (the industry leader), which costs $800 to make and sells for $1,000, for a profit margin of 20%. Further, the spot market for key input commodities has gone up by 15%, and suppliers are asking for a weighted 10% price increase in components used in XYZ.

In Scenario B, we see the “threat” if increased costs come to pass and ABC (the industry leader) does nothing (pass-through type “None”). An additional $50 of costs eats right through, taking profit down from $200 to $150, and margin to 15%. Clearly going from A to B would not be a fun day at the office / on Wall Street for executives of ABC (especially if publicly traded).

In Scenario C, we see a “layman’s pass-through”: ABC passes, dollar-for-dollar, its $50 of extra expected costs, to its customers via a 5% price increase. This is how most of us understand a company’s talk of needing to “pass-through” higher costs. ABC’s profit is still $200 as before.

But is this what happens in reality? In a public company, that is unlikely. Any “layman” on the pricing team will be challenged to evolve an understanding of Wall Street’s obsessive love of margins. And because there is no “markup” on the $50 of extra price to cover $50 of extra costs, this “profitless pass-through” results in (slightly) lower margins. Back to sharpen that pencil!

In Scenario D, we see where many companies will start the table stakes: a “full” pass-through in which the price increase % matches the cost increase % (6.25%). The entire pie of revenue, costs and profits all inflate in sync, keeping margins the same. This would be pretty close to magic: inflation has produced top- and bottom-line “growth” for ABC without requiring ABC to produce a single drop of incremental value for customers.

Note: This is Level 1 of “inflation as profit opportunity,” and we are assuming ABC sells the same number of Gadget XYZ units as before (ignoring price sensitivity, which we discuss in Section 3). For most companies in a contained inflation environment, healthy growth of revenue and profits, while maintaining healthy margins (in a presumably highly competitive environment), is the stuff of all-around high-fives (and valuation gains). Inflation plus price increases (especially those matched by competitors) can deliver the same results.

Or can they do much, much better?

B. How “mitigation” and “commodity trend reversal” can become profit centers

Supplier inflation “mitigation.” So far, we have assumed ABC just “pays up” the headline “market” inflation (15% on commodities, and 10% increase demanded by suppliers), for a $50 hit on costs. But do you know any companies with strong procurement functions (or CFOs), that just pay up “market”? In larger companies, a “dual path” may emerge. The pricing team is instructed to plan the 6.25% increase (scenario D), that would “cover and protect” margins under the worst case. The procurement team, meanwhile, is negotiating, shifting suppliers, and turning every other stone to “mitigate” the supplier hit down to say 5% instead of 10% “advertised” increase. This now presents possibilities like Scenario E or F and a choice.

In Scenario E and F, the resilient ABC has cut in half the “market inflation” demanded by its supplier, mitigating the cost hit by $10 (components cost $210 instead of the feared $220 from Scenario B). This is Level 2 of “inflation as profit opportunity.”

In Scenario E, the ABC price increase is correspondingly dialed back, so only actually incurred costs are (fully, with markup) passed through, keeping margin at 20%. Effectively, inflation has materialized in an only 5% increase in costs, and the price increase was cut back to a matching 5%. Customers get the “benefit” of mitigation, while ABC is still doing quite well (and better than before, Scenario A).

By contrast, in Scenario F, the ABC price increase proceeds at the highest / worst-case scenario level (6.25%), in effect passing through (with markup) costs that never actually materialized. ABC “captures the moment” of weaker customer resistance, and asymmetry of information, to its full advantage. ABC may also do this in a belief that it’s a way to “earn a return” on having a strong procurement function / size and negotiating leverage / strong cost controls. Here, ABC turns single-digit inflation into a double-digit profit growth opportunity. (Again, we defer price sensitivity considerations to Section 3).

Note: This is Level 2 of “inflation as profit opportunity,” and we are assuming ABC sells the same number of Gadget XYZ units as before (ignoring price sensitivity, which we discuss in Section 3). There is hardly anything special about E and F, except to illustrate two rather different choices. ABC could go for a price increase anywhere in between, of course, or higher than F to capture, perhaps, value it now realizes it should have captured earlier, unrelated to inflation (but made easier by it).

Which of Scenario E or F do you think most companies your size would come closer to? Which do you think Fortune 500 companies choose?

Commodity inflation “trend reversal.” We now introduce another twist. As we’ve seen above, when commodities prices go up, ABC can increase price (repeatedly, if the trend persists). But what if prices then go back down? Will there be a flurry of press releases from industry leaders cheering for the cost decrease and announcing price cuts to “pass-through” the benefits to customers? Unlikely. Again, ABC has a choice, whether to keep the windfall surplus profits resulting from any commodity price decrease, or return them to customers and “merely” keep its original 20% margins up. This is Level 3 of “inflation as profit opportunity.”

Let’s use a hypothetical where ABC’s only relevant commodity input cost is from oil. Over the last 5 years, the commodity price fluctuations would have produced several junctures to “pass-through” cost increases. Assuming a large company’s cadence of (at least) two price review and action cycles per year, for the cycles marked 1, 2, and 3 on the chart, ABC would have experienced significant cost run-ups, offering price increase rationales similar to earlier scenarios D and F.

Inflation and Price Increases

Once the “trend reversal” occurs mid-chart, however, each subsequent cycle presents a Level 3 profit opportunity. By implementing timely and assertive price increases that “pass-through” the rising oil costs, ABC would give itself a put option every time the price of oil subsequently goes back down. Let’s look at the value of that option, by introducing a “partial” commodity inflation trend reversal in ABC’s P&L.

In Scenarios G and H, ABC gets another tailwind. Perhaps weeks or months after the original price increase (we assume ABC went for Scenario D) we see the original increase of 15% in commodity price has reversed down to only a 7.5% increase (this happens multiple times on the real chart of oil prices above).

In Scenario G, we show how ABC’s P&L would look if it gave its customers a price cut (symmetric to original price increase), so its overall margins stay at the original 20%, in effect “passing through” the commodity price decrease back to its customers. While ABC is still ahead of where it started (scenario A), and still at its original healthy margins (protected from any inflation), Scenario G looks like a tough sell once the “new baseline” of Scenario D took hold.

In Scenario H, ABC decides to stick with its price set based on Scenario D, and captures the upside from lower commodity costs in their entirety. This would produce outstanding expansion in $ profit of nearly 19%, 3x the price increase %, as well as margin expansion (20% to 22.35%).

But what if H could happen several quarters in a row? What if the commodity price truly “reversed” to even lower than the original $200 instead of merely giving back some of the early increase? This is the “Surplus Profits” scenario depicted on the oil chart above. Compounding the impact of several timely price increases in the past, we get a maximized scenario of Level 3 of “inflation as profit opportunity.” Having set the “put option” for the commodity price at a very high strike price and gotten its customers to buy into it (even if reluctantly), now every time ABC sells a Gadget XYZ at this “peak inflation” price, in effect it “puts” the commodity input to its customers at $230, while the market price is $215 and falling. A multi-quarter strong trend reversal akin to the oil chart is making each quarter ABC gets deeper “in the money” snowball of profit growth.

Note: In reality, ABC’s commodity cost is spread and diversified across many commodities, with different % impact on total costs. This has several implications:

  1. There is rarely a quarter when there isn’t “some” commodity going up in price, recommending diligent consideration of “pass-through.”
  2. It is quite rare to have the entire basket of commodities in the P&L going up by 15% on a weighted basis from one quarter to the next.
  3. Tariffs (such as those imposed in the USA in 2018) or market supply disruptions (war, blocking of Suez Canal, natural disasters) can create high-correlation dynamics in prices of both commodities and supplier parts and components.

3. Competitive Considerations When Choosing YOUR Approach

In a future report, we will discuss in more detail the factors and options that should guide middle-market consumer brands and B2C firms. We preview however some of the key themes in the following observations.

On price increases in general, industry-leading consumer brands and B2C firms hope that everyone else will follow, precluding customer defections to less opportunistic (or simply less well prepared) competitors.

Industry-leading brands often telegraph their price moves ahead of time, in an effort to encourage their competitors to “follow” and raise prices (and give them time to do so). Why? Everyone could be inspired (and reassured) by such signaling to take of their own accord roughly similar price moves at roughly the same time. The industry as a whole would be free of everyone’s (typically) largest constraint: fear of losing customers to the competition. Relative positioning of competitors vs. value offered would be nearly unchanged. No new incentives for customers to defect to a competitor would arise from price increases alone.

Add to this “idealized” scenario of “me too for everyone” a very real current environment of surplus consumer savings and WTP, and the “simplified” analysis throughout this report at the “per unit P&L” level wins out. In such a scenario, especially for “moderate” single-digit price increases, ABC may well end up seeing no price sensitivity, and units sold would be unaffected. Revenue and profits at ABC (the leader) would rise at healthy clips like in Scenarios D, F, or H.

When everyone is a “me too,” the strongest get stronger (gain faster than the rest)

Despite the appeal of the “me too” path, it’s never really “me too” for middle-market or smaller competitors. Even if every firm matches the raise of the leader and keeps all its customers, the strongest brands / industry leaders have extra gears that make their payoffs higher and their optionality wider. In particular, for true profit-boosting Scenarios F or H, firms benefit from:

  1. Ability to “mitigate” supplier price inflation. This often correlates with firm size, footprint with each supplier and strength / savvy / information assets of procurement team.
  2. Ability to capitalize on “commodity trend reversal.” This is built on pricing savvy, solid forecasting and pricing research, well-oiled (pun intended!) pricing execution processes, multiple price reviews and actions built into organizational capabilities.
  3. Established brands with broad portfolios of products (or multiple brands owned by a single parent) that cover potential “substitutes” a customer could switch to. They are also less likely to lose significant share to any “contrarians” who don’t raise prices (see next consideration).

The leader may have Scenario F or Scenario H available multiple times in each 5-year period (see oil chart in section 2). Even if middle-market competitors took the most opportunistic price increases, they may not benefit from supplier mitigation, or may only be able to implement price actions once per year or every other year. It is not hard to see the compounded growth rate in profits for the (already stronger) leader, dwarfing all competitors after several rounds of this “inflation lifts all boats” exercise.

Being a “follower” is much murkier and riskier in the real world

Because collusion is illegal in the United States and most advanced economies, the leader is precluded from handing out detailed guidance by product or by market of their upcoming price increases (even when the increase has been executed, and new price lists are pushed to distributors or retailers, a competitor may only be able to learn retail prices facing end-customers). It is also precluded from seeking agreements or any behavior that would “guarantee” any other competitor will take the “me too” option.

“Due to commodity price inflation that in some raw materials may exceed 10%, ABC will increase prices on select products across the Devices & Gadgets portfolio, on average, by 5-7%” may be as specific guidance as you get (and ABC would give you as much guidance as their lawyers will allow, as discussed above). But ABC has hundreds of SKUs in the “Devices and Gadgets portfolio” (it’s the leader, after all). You, a middle-market competitor, only make direct competitors to about 10% of those. What does “on average” tell you about the ones you care about?

Further, you’re less worried about ABC than about other focused middle-market competitors, who are more focused competitors closer to you on both the price ladder (price points for each of your products’ competitors) and the value line (perceived value, quality vs. price). In other words, many of your customers may be more likely to defect to a focused competitor who may not follow the leader and suddenly appear like a value option compared to your new, higher prices.

Being a (well-informed) mission-driven contrarian can pay large dividends

Your C-suite may be a bit put off by Scenario F/H. You could question (especially if you have high margins already) an outcome in which your customers pay you more for “inflation” that one way or another didn’t really materialize (or was swiftly reversed in the next months). You may want to wait a couple of quarters and get better prepared before pushing a price increase. Or you may decide to dial way down the size of the step up in prices and make smaller incremental moves.

Will you pick up market share if you take a more “customer-friendly” approach? Will the gains in profit exceed what “me too” could have gotten you? Are these even the right questions?

It depends, and it’s a non-trivial analysis that we will address in our (Part II) future report. And it may not matter if you take a “mission-driven pricing” approach or decide how to slice this inflation “opportunity” on considerations other than profit-maximization.


  1. Evidence of an inflationary acceleration is accumulating, and price actions by industry leaders are both responding and contributing to it.
  2. All firms should be prepared to respond to accelerating inflation with thoughtful, informed actions based on their own analysis.
  3. Price increases are a frequent response. They can range from purely defensive “layman’s pass-through” to surprisingly attractive opportunities for proactive pursuit of profit growth.
  4. When B2C industry leaders raise prices to “pass-through” inflation costs, they frequently do so aggressively, rarely content to merely preserve previous profit levels.
  5. This creates profit opportunities for every firm in the industry can act on. Whether followers or contrarians, middle-market firms must decide which path is more advisable given their competitive strengths, margins profile, and their pricing “culture.”
  6. Timing and preparedness matter. Whether you start in a follower or contrarian mindset, translating it into a strategy and concrete actions plan takes time, and consumers’ higher WTP won’t stay “primed” forever.
Appendix: Key Commodity Price Charts (Last 3 Years)
Inflation and Price IncreasesBrent Oil
Inflation and Price IncreasesHigh-Grade Copper
Inflation and Price IncreasesSteel
Appendix: Key Commodity Price Charts (Last 3 Years)
Inflation and Price IncreasesSoybeans


Inflation and Price Increases Cattle
Inflation and Price Increases Silver

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