Protecting revenue and margins in these times of uncertainty created by the coronavirus (COVID-19) becomes paramount for businesses – without margin, cash flow will dry up.
Businesses need to be able to react quickly to what are likely to be fast moving, dynamic and challenging situations created by the coronavirus (COVID-19). Ensuing an agile, clear and effective approach to strategic pricing is vital in challenging market conditions.
Below are five areas to consider when determining your pricing strategy moving forward – along with practical suggestions for how to ensure the maximum impact with each consideration.
1. Business continuity
- Quantify any additional or incremental costs associated with the disruptions caused by the coronavirus (COVID-19) to incorporate into pricing.
- Be cautious about overpricing of essential goods, such as staple foods, toilet paper, hand sanitiser and face masks, during the crisis period. You need to avoid any potential brand damage that may occur from media reports and government authorities.
- Know your floor price. Where price changes are deemed to be appropriate, communicate the changes with employees on the front line to ensure that they can explain the reason for the changes to customers.
- When appropriate, communicate these changes clearly with employees and customers.
- Where possible leverage an existing offering to develop alternative products or solutions to meet the evolving market needs.
2. Customer behaviour
- Maintain an up-to-date single view of the truth of contribution margin. This should be split by product and customers. Utilise this to monitor changes and undertake proactive actions to prevent losses.
- Critically monitor the changes in customers' willingness versus their ability to pay across different segments and adjust prices accordingly.
- Establish a dedicated team to focus on the cost-to-serve assessment and as well as to risk manage any shortages. This team can work with the supply chain team to reconfigure global and regional supply chain flows to manage costs during these coronavirus (COVID-19) affected times.
- For financial products, organisations should use data analytics to identify high-risk customers and work with them to mitigate the risk of default.
- Where required, review prices and re-negotiate contracts with key B2B customers and suppliers. Do this with a clear understanding of the level of contribution margin that will be achieved, by product and at customer level. This will help maximise the chance of collective business continuity.
3. Agile forecasting
- Timely and accurate forecasting relies on scenario analysis.
- Any scenario analysis should test the organisation's exposure to key risk factors and its ability to deal with different distressed situations.
- The business can then actively prepare for these scenarios by either eliminating, reducing or mitigating the risk of impairments.
4. Value pricing
- Define and communicate guiding principles and have a unified overarching approach to overcome the challenging period.
- Set measurable and coherent actions based on the scenario analysis and the agreed guiding principles.
- Revise pricing strategy to reflect changes in how customers are perceiving value as well as any changes in cost-to-serve and supply and demand predictions.
5. Alignment and communication
- Create a clear, synchronised and frequent communication processes to facilitate open and consistent flow of accurate information between pricing, sales, supply chain and customers.
- This will help to maintain customer confidence as well as harmony within the organisation.
- Align incentives and remuneration across the organisation based on the agreed guiding principles.
If you have any questions regarding the content of this article and would like speak to someone from our team please contact us.