The past two years of the COVID-19 pandemic have majorly impacted the global economy. Though there has been some progress seen in companies since the worst of the pandemic has come and gone, it is a crucial time for companies to be strategic in their pricing.
Global Economic Influences
Around the world, the dip in the global economy means a recession is looming over our heads, though it is not inevitable. With the conflict in Eastern Europe, energy prices soaring, the omicron outbreak in China, and inflation in the United States, prices across many industries are skyrocketing. Logistics, retail, consumer goods, and telecommunications are only a handful of the industries that are seeing an increase in pricing.
In fact, crude oil prices have risen 44% in just six months and have reached multi-year highs. US inflation rates have reached record peaks since the 1980s, rising to about 8.5% in March 2022; and in Qatar, the inflation rates have risen 6.5% in the past 2 years. On top of that, the UAE recently announced the introduction of a 9% corporate tax rate to be applied on a minimum annual income of US$102,000. This is set to take effect in June 2023.
Whether there will be a global recession or not, now is the time for companies to act and reevaluate their pricing strategies. Big-name companies like Kraft-Heinz, Ralph Lauren, Airtel, and DHL have already begun raising their prices in line with what is appropriate with their brand value and consumers’ price sensitivity.
Understanding Your Prices
With the economic trends of the past couple of years, many companies are finding that the need to increase their prices is inevitable. To do so effectively, businesses must consider price points that don’t negatively affect them. It’s crucial for companies to set prices that maintain wide enough margins so they can still maximize their incoming revenue, while also preventing the volume from declining. Finding pricing points is a fine line to walk, but being intentional with analyzing and executing price points will allow the company to have higher pricing power.
High Pricing Power
For a company to increase their prices without losing volume or customers, there are a few factors to consider: brand value, specialization, and supply chain management. If a C-suite executive is mindful of these factors and optimizing each sector, they are more likely to have a company with high pricing power.
Brand Value is the key to leveraging pricing power. The value of your brand goes beyond the value of the product you offer as it incorporates customer loyalty, which influences price sensitivity. Companies like Ralph Lauren are an excellent example of how brand value can leverage higher pricing power. Ralph Lauren is an established brand with a consumer base that has proven to be unlikely to shop elsewhere even with rising prices. The customers’ price sensitivity is low because of the brand’s value. A way to increase a company’s value is to provide reliable, consistent, and efficient services. Also, if a company can afford to invest in themselves with updated technology in their supply chain, that would be beneficial.
Innovation and Specialization. Technological advancements in the supply chain are beneficial to the company, with logistics companies using their data to result in better efficiency in inventory management, and keeping warehouse stock in line with consumer demand. These innovations bring more value to the company, leveraging their power to increase their prices.
Managing Supply Chains. C-suite executives simply will not benefit from a hands-off approach of managing their supply chains. The more control and oversight an executive has in the company, the better it is regarding pricing. This is because diligent management can adjust and prioritize production costs to reduce unnecessary spending, optimizing workflow and production. Carefully managing their supply chain has proven effective for tech giant Apple, who has developed and maintained relationships with suppliers in both short and long periods. The company saw an annual compound growth rate in excess of 16% in stock prices from September 2021 to February 2022. Having more control over supply chains manifests itself in life cycle monitors, meticulous inventory checks, and quarterly reviews.
Gaining higher price power isn’t just about taking a look inside your company and how it operates. C-suite executives need to look outside, too, by closely monitoring the sales and pricing trends within their industry.
A recent study by Simon-Kucher and Partners found that 57% of respondents had felt the pressure of higher prices within the past year, with 64% stating they are currently - either directly or indirectly - in a pricing war. 68% of respondents plan to increase prices in line with inflation in 2021.
Pricing Strategy - What is it?
Especially with rising inflation in major economic powers like the United States, having a comprehensive and effective pricing strategy in place is vital for a company’s success. C-suite executives must be diligent in overseeing their company, through each sector of the business to consumers. It goes further than a basic understanding of each facet.
This strategy should be clearly formulated and based on market dynamics, and have pricing priorities in order. Thorough analysis of product and brand value are vital to an effective pricing strategy. C-suite executives must lead the company in good communication practices both internally and externally. Effective internal communication results in employee awareness and allows higher-ups to properly monitor the processes in which the company operates. External communication involves managing consumer expectations.
Having a solid pricing framework in place will drive the company’s growth over time, and result in volume growth, price realization and improved customer retention.
For c-suite executives, there could not be a more demanding time to bunker down and anaylze company pricing strategies. With the current economic climate globally, old pricing strategies may no longer provide your company with optimum results.