Many businesses are struggling with high costs for raw materials, labour, energy, and other inputs. At the same time, demand is surging as economies reopen for business in the wake of falling COVID-19 cases.
Some businesses have started to raise prices in response, with producer prices in the OECD countries up 9% in the 12 months through April 2021. While chronic inflation might not occur, companies need to hedge now against a medium or long term inflation scenario.
Five tactics that can help are:
- Treat customers differently. Instead of blanket pricing, use surgical increases informed by the cost to serve, historical performance, and value to the supplier of an individual customer or segment.
- Exchange price for other valuable features. Prepare for customers resisting a straight increase, by offering other benefits. These range from volume guarantees to bundled products or adjusted service levels.
- Enforce what’s already in the contract. Many companies put price increase contingencies in their contracts but don’t regularly enforce them and may not even be aware of them.
- Consider indirect increases. Companies may be able to pass on surcharges for fuel, expedited shipping, inventory holding, and longer payment terms.
- Adjust the product mix. During a period of inflation and supply shocks, what a company makes can be even more important than who it sells to. It’s critical to have a current SKU-level view of profitability, not just a customer-level view.
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