10-08-2024
COVID-era supply chain disruptions provided a convenient pretext for companies to ramp up prices across the board. Customers had little choice but to grin and bear it. Between January 2020 and May 2023, prices shot up by nearly 18%, according to the Consumer Price Index.
More recently, the Federal Reserve’s decision on September 18, 2024, to lower the Federal Funds Rate by 50 bps is a fitting coda to this era of massive price run-ups. Price growth has trended toward the Fed target of 2%, and consumers no longer accept sweeping price increases.
Blunt, pandemic price increases are no longer palatable to the market. Today’s pricing adjustments must have surgical precision. For many business veterans, this “new normal” should feel familiar. Pre-pandemic, markets demanded a fine-tuned approach to pricing. Now is the time to revisit the basics of price discipline with lessons learned from the pandemic:
The supply chain has generally returned to normal, so broad price increases must be replaced with targeted action. Smart pricers recognize that one size rarely fits all. Tailored adjustments can capture additional margin without alienating customers or harming volume.
Prices shot up quickly during the pandemic, and for good reason. Cost changes were so rapid that fast price increases were needed to keep margins whole. As costs stabilize or decline, resist the urge to drop price with the same speed. Bring down prices slowly, like a feather on the breeze. Deliberate, well thought out price decreases can prevent over-reduction, which unnecessarily erodes margin.
When competitors cut prices, it’s tempting to follow. But price wars are seldom worth fighting. Opt out of the race to the bottom on price by focusing on value: faster delivery, superior inventory availability, better technical understanding of the problems your customers face, and relevant product and service bundles to solve those problems are a moat that will protect your margins no matter what the competition does.
Pricing is never a one-and-done endeavor. The Federal Reserve has signaled further interest rate cuts through the end of 2024, so business conditions can change overnight. Expect to recalibrate and refine your price position as the market evolves.
Dan Cakora is a business consultant at Vendavo, where he specializes in aligning the pricing challenges faced by executives with the organization’s solutions and best practices. He earned a BS in economics from Purdue and an MBA from DePaul University. A member of the Daniels School’s Alumni Board, he regularly writes about inflation on LinkedIn.
