The new year is coming – what will you do to your prices?

Inflation is running rampant, putting stress on consumers and businesses alike. That’s nothing new. No doubt most of your own suppliers have started raising their prices, leaving you with the nagging and pressing question of what to do with your own. The typical response has been more aggressive blanket increases with little consideration for the specific circumstances of different customers. While this approach is undeniably low effort and time efficient, it is also undeniably sub-optimal – and is sometimes disastrous.

There is a better way. The age-old principle of good pricing practice – understanding customer value – is not just valuable in determining price levels; the same playbook should be followed for price increases. While in a low inflation environment the sub-optimal approach of blanket increases to pricing growth might have been traded off in favour of simplicity (and perhaps that trade off was at times sensible), that’s very unlikely to be the case now.

Inflation has transformed expectations and the good news is that customers are much more accepting of price increases than they were just 12 months ago. Maximising the opportunity lies, however, in understanding where to push hard and where to be accommodating. Our pricing experience suggests developing a ‘scorecard’ to understand pricing power at a customer level is critical for success. Metrics to be considered are obviously dependent on the specific situation but are more likely than not to include:

• Market segmentation: what markers of segmentation correlate with price sensitivity? These could be obvious (e.g. size / geography / usage) or less obvious (e.g. is purchasing process dominated by procurement vs. operations?)
• Competitive position…: how differentiated is your proposition vs. competing offers? Are you already at a premium / discount vs. others? How does this position vary by segment?
• …& competitive response: Are your competitors also raising prices? Are their actions the same across segments / regions?
• Historical start point: how good a deal are your customers getting vs. the market norm? Is now the right time to introduce minimum price thresholds to get those annoying lower quartile spend customers back to median?

The scorecard will enable an account-by-account level approach to pricing inflation. Tooling the sales team with the right messages, negotiation strategy and incentives are the final ingredients to the recipe. Yes, going down this path will require a bit more effort but the riches you get in return more than justify it.