What to Do with Pricing when Demand falls?

Over the past two years, businesses have encountered a range of challenges. Inflation and geopolitical factors have led to an increase in product prices, a scarcity of raw materials and production equipment, a surge in logistical costs, supply chain disruptions, a shortage of skilled labor, partial market closures, and so forth.

How can businesses combat growing inflation and falling demand without compromising profitability or revenue? And how should the approach to pricing strategy management change in this context?

Let's examine seven key recommendations.

In the current climate, no expert can predict exactly how inflationary processes will unfold. In such instances, it's advised to draft several different scenarios to ensure maximum company preparedness for any combination of these uncontrollable events.

Market volatility contradicts any firm or defined solution. However, there are several pricing strategies that can be utilized to tackle falling demand. It may also be worth considering the implementation of flexible and responsive pricing.

The inability to fulfill all orders on time due to increased demand creates an ideal situation for price hikes. However, this factor may disappear rapidly if competitors manage to meet the increased demand. In this case, a price adjustment will again be required, or financial performance might suffer. Establishing prompt competitor price monitoring is the most optimal way to navigate such situations and make informed pricing decisions.

The era of annual price adjustments has ended, as many companies have realized that maintaining efficiency and competitiveness without multiple price corrections throughout the year is impossible. However, customers dislike unpredictability, so pricing transparency is crucial when navigating these increases.

When businesses experience a liquidity shortage and cost surges, it is recommended to clarify the link between pricing decisions and the increase in production costs in inflationary conditions. Sales departments in B2B segments should be ready to explain to clients why surcharges and price adjustments are made…and why they're “fair.”
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While some companies are capable of swift action in dealing with product range challenges, pricing management flexibility often falls short. Many businesses now find themselves in alarming circumstances as they see demand drop and costs rise.

Pricing flexibility is crucial as customers experience "price fatigue". Companies that delay raising prices for too long risk losing a significant portion of customers by abruptly increasing prices.

When the market is turbulent, understanding each consumer segment and how economic shocks affect it is especially important. Now, more than ever, businesses must define the unique value they offer to each customer group, compared to competitive alternatives, and then use this knowledge to make swift pricing decisions.

customer segments and unique propositions to make swift pricing decisions in two key areas:

● Price Lists:

Use knowledge of your target audience's price sensitivity to different product groups to determine which products can have greater price increases in the price list without negatively affecting sales, and which ones should have minimal mark-ups.

● Discounting:

A company may avoid the need to raise list prices by reducing the volume of discounts provided. Cutting back on previously offered discounts will positively impact profitability and not lead to a drastic drop in sales.

Enterprises that can adopt a flexible approach in these areas will be better prepared for the storm of economic instability.

To retain customers amid declining purchasing power, experiment with various mechanisms that can soften the negative impact of price increases. They can help increase the frequency of purchases and the number of items per transaction.

Here are some recommendations to help:

◆ Don't give out open discounts to everyone, transition to cumulative systems and personal offers.

◆ Activate work with loyalty cards if you have them, and start a loyalty program if you don't yet have one.

◆ Use unconventional moves to attract new customers. For example, announce that you accept points from loyalty cards of competitors that have left the market. According to this scheme, a customer can come and name any number of points they had accumulated in another store. This is all built on trust, and even if it's not true, the company takes their word for it. This mechanic is great for attracting new customers and turning them into regular shoppers.

◆ Use different types of installments in agreement with product suppliers or use installment programs.

◆ Give clients large deposits with restrictions on the use of points. Immediately credit a new customer with a large number of points, which can be spent with certain restrictions. For example, points can cover no more than 10%-15% of a purchase.

◆ Compensate for the price increase with good service. Become the most customer-focused company in your market. If the products and service are of high quality, and the customer is loyal to the company, they will be willing to pay more.

At times when businesses face a demand downturn, when customers are stressed and become hypersensitive to prices, special attention must be paid to pricing. You will need a super-fine-tuning of the price barometer, which will promptly respond to changes in the economic situation, competitive environment, and customer expectations. If you can "maintain balance on the price rope," your company will pass through this challenging period with dignity, strengthening its position and increasing its capital.