How to Manage Inflation Without Damaging Reputation
As swelling inflation threatens to erode company profits, many business leaders are facing a tricky landscape. Not only is inflation at a 40-year high, but there’s a tight labor market, spiking raw material costs, and lingering supply chain issues to negotiate.
Price hikes are often the way out. You’re seeing it everywhere: airlines, restaurants, building supplies, and the list goes on. But the real question on the minds of CFOs and finance leaders is: How do you raise prices without alienating customers?
As Gartner points out “pricing strategies must be approached carefully to protect the organization’s reputation.” And this certainly includes price increases.
Yet, customers are fairly understanding. They recognize the urgency around inflation and market factors that require a price response. However, with price hikes all around us, it might be expected that the view may be shifting a bit. According to the Gartner report, “The perception that companies are increasing prices for the sake of boosting profits alone is increasing as prices continue to rise.”
4 Steps to Relieve the Effects of Inflation
1. Be transparent.
Good communication is key. As one respondent explained in Gartner’s research report: “Companies should be honest. They shouldn’t hide the price increase by keeping the price the same but then ‘shrinking’ the product.”
2. Price with surgical precision.
Blanket pricing actions may be necessary, but a pricing strategy that enables a tailored approach can help you turn inflation into an opportunity for strategic price adjustments. This means truly understanding your customer and having insight into factors like willingness to pay, historical performance, and customer lifetime value. It’s not just about bringing customers with low profitability into a standard range, but also scrutinizing customers who have average profitability. AI-powered solutions can help you quickly surface who they are, how they buy, and how to best move them toward the optimal price.
3. Respond quickly with accurate, optimized pricing.
Dynamic pricing is your new best friend; this is no time for spreadsheets and manual work. Today, it’s all about automation and smart science doing the heavy lifting for you. With automation, you can analyze data on the fly to navigate through periods of inflation, volatility, and disruption. Robust dynamic pricing strategies have guardrails to ensure that pricing is market-relevant and doesn’t fluctuate dramatically without reasonable cause. Dynamic pricing helps set price points that customers are happy with, while keeping prices fair and relevant to wider conditions.
4. Equip the front line.
Ensure that salespeople have the smart solutions that empower them to make good pricing decisions. No sales rep wants to have an uncomfortable talk with their accounts. But when you provide them with things like clear details on cost changes, easy management of service level agreements, and account-specific targets (like where to quickly locate cross-sell and upsell opportunities), this goes a long way to create both happy employees and customers.
Price with Confidence as Inflation Rises
When you have intelligent and integrated capabilities to manage pricing and quoting functions, you can improve your position in a way that reduces backlash and preserves your company’s reputation—not just during inflation, but whenever the market dynamics warrant it.
That’s why businesses are moving to solutions like smart price optimization and management (PO&M) and configure, price, quote (CPQ). Organizations already use AI-powered tools for insight into buying intent and preference. By expanding the use of AI to evaluate the overall markets more fully for customers, and understanding buying behavior on a much deeper level, companies are able to deliver a more agile, better informed, and more intelligent selling process that’s tailored for every customer.
About PROS: (NYSE:PRO) PROS is one of the best kept secrets for profitable growth. For over 35 years, we have been uniquely positioned in the tech industry offering the world’s only AI based platform that helps businesses grow their margins and revenues. With more than 20 patented AI algorithms and 30+ million AI models, the PROS Platform is powered by advanced AI science that continuously delivers actionable insights based on the unique conditions of every buying engagement. These insights give companies more visibility into market volatility and allow them to rapidly adjust prices and quotes in response to real-time market shifts, feeding daily decision making and supporting longer-term business strategy and profitability. PROS AI is the driving force in updating more than 400 million prices and 1.7 billion forecasts daily in more than 30 industries around the globe.