Pricing Strategy #3: You’d Be Dumb to Ignore Flexibility to Cost Changes
Welcome back to our series, “6 Pricing Strategies You’d Be Dumb to Ignore.”
Yesterday we talked about reacting quickly to competitive pricing.
Strategy #3: Be Flexible to Cost Changes
Today is about building flexibility into your pricing strategy so you can manage unpredictable cost changes and maintain control over margins.
Many Cost Factors in Motion
So why are costs so fluid right now?
- Tariffs are still changing regularly on products sourced from overseas, particularly China. It may be a good idea to run cost analysis on a speculative buy (or forward buy) where cost increases are probable. Related article: Tariffs & Inflation: A Good Time to Forward-Buy Inventory?
- Transportation Capacity. Shifts in customer demand and designation of essential goods are impacting transportation capacity. In turn, these factors impact the “landed” cost of goods and, therefore, margins.
- Production Disruption. As stay-at-home orders and sicknesses spread, suppliers’ situations are changing. This translates to product availability shortages, labor shortages and resulting costs changes.
How You Can Respond
There are two ways distributors and retailers can cope with these cost changes – each with very different financial outcomes:
- Using Cost-Plus Pricing. This inflexible approach requires constant updates to price, as well as mis-measuring customer willingness-to-pay. The result is a slow response to competitors’ prices, missed sales opportunities and cash tied up in overstock.
- Using Price Optimization. Price Optimization software builds a flexible buffer that will protect your bottom line during the pandemic and beyond. Price Optimization tools use intelligent machine learning and analytics to identify the most efficient price based on your financial objectives. This includes real-time price analysis to identify the best profits and revenues by channel.
Learn More About Price Optimization
At a time when freeing up cash is so important, you can’t afford to ignore price optimization.
Learn how Price Optimization software empowers you to flex with cost changes, while maintaining minimum margin or markup, maximizing profits, revenue, market share, sales volumes and other critical KPIs.
Schedule 15 minutes with one of our supply chain experts:
Back to Part 2: React Quickly to Competitor Pricing
Read this series from the beginning