Developing pricing strategies while navigating uncertain times

In today’s volatile economic times, proactive pricing strategies are a crucial lever for CEOs of small and midsize businesses to achieve their business goals. The latest Vistage CEO Confidence Index survey revealed that 44% of CEOs have raised prices since the beginning of the year. Additionally, nearly 7 in 10 (69%) CEOs expect to be negatively impacted by changing tariff and trade policies, and as a result, over half (51%) plan to increase their prices in the next three months.

In light of these challenges, we asked Kirk Jackisch, president of Iris Pricing Solutions and a Vistage speaker, to share his insights into managing pricing amid inflation, tariffs and stagflation. His expertise provides a roadmap for CEOs to navigate these complexities effectively.

Understanding the pricing landscape for CEOs

Proactive pricing strategies are a best practice emphasized by Jackisch, even in times of low inflation. But in today’s highly volatile environment with lots of uncertainty, it is even more important to have a “Pricing Playbook” that ensures the business stays ahead of rising costs, which can include labor, benefits, tariffs, foreign exchange and other operational expenses.

Outside of tariffs, the current situation is compounded by weakening demand, resulting in many companies experiencing “stagflation,” where demand decreases while costs continue to rise. This presents a unique challenge, Jackisch notes, “with the demand falling, business leaders get very nervous.” This scenario necessitates a nuanced approach to pricing, striking a balance between maintaining margins and adapting to a shifting market.

Introducing aggressive pricing strategies to maintain volume can result in competitors responding in kind, increasing the possibility of a protracted term price war. It is best to watch your market share if it is holding, then aggressive pricing actions should not be considered, Jackisch says, except in response to a competitor’s pricing actions.

Establishing a pricing playbook: scenario planning for pricing strategies

Creating a plan is crucial for CEOs in uncertain times. Jackisch explains, “We call them playbooks, pricing playbooks, but it is really scenario planning.” These playbooks allow businesses to plan for possible cost, share and volume scenarios, planning on how they will adjust their pricing strategies in each situation accordingly.

In the current environment, understanding the net impact of tariffs and other cost changes enables companies to make informed decisions about pricing, in addition to other factors such as production locations and supply chain adjustments.

Key components of a pricing playbook

• Cost analysis: Understanding the direct and indirect impact of tariffs and other cost changes is essential. Jackisch highlights the importance of doing this spreadsheet work to assess the net impact on overall costs.
• Production adjustments: Companies may need to consider making production adjustments to mitigate the impacts of tariffs. These include increasing order efficiency, reducing the cost of your product and moving production to a country less — or not at all — impacted by tariffs.
• Pricing levers: Jackisch outlines five pricing levers that can be considered once you understand the final impact on your business:
  1. No change: This is used in situations where there is a nominal financial impact, expect the tariffs to be brief, or where you may not be able to raise prices.
  2. Modest increase: This is a “shared pain” approach where you share the impact of the tariff with customers through slightly higher prices and margin dilution.
  3. Keeping profit dollars neutral: In this approach, if you were making $10 in profit before the tariff, you adjust prices to make $10 after the tariff
  4. Maintaining margin neutrality: Raise your prices to keep your profit margin the same
  5. Taking a larger increase than your cost analysis would indicate: This is used in a scenario where you might have some product prices you decide not to change, or you want to guard against additional cost shocks, such as another increase in tariffs or a change in FX as a result of tariffs.

Each lever offers a different approach to managing pricing in response to cost changes. Most companies are using a combination of these levers.

Do’s and don’ts: Avoiding common pricing mistakes

Do use product differentiation to maximize results

Differentiation remains a key factor in developing pricing strategies. Jackisch advises CEOs to identify areas where their products or services have unique value. “If I’m differentiated, I can take bigger increases,” he explains, “without putting volume at risk.” This approach allows businesses to leverage their unique offerings to justify price adjustments and take smaller increases where the situation is more competitive

Don’t drop prices to maintain volume

Jackisch warns against the temptation to discount to maintain volume, especially when market share is holding (or maybe even increasing). “If you promote through discounts to increase volume, you are increasing the risk of starting a price war, which is inherently difficult to recover from,” he cautions. Instead, CEOs should focus on monitoring their market share as a proxy for whether there is a pricing issue that needs to be addressed through a pricing action.

Four actionable takeaways for CEOs on pricing strategies

1. Develop a pricing playbook: Start scenario planning now to prepare for potential cost changes. This proactive approach will enable quick decision-making when market conditions shift.

2. Focus on differentiation: Identify and capitalize on areas where your business offers unique value. This differentiation can provide the pricing power needed to navigate challenging economic conditions.

3. Avoid price wars: Maintain market share without resorting to price cuts. Focus on value and differentiation to sustain profitability.

4. Monitor costs and adjust accordingly: Regularly review cost structures and adjust pricing strategies to reflect market changes.

By implementing these pricing strategies, CEOs of small and midsize businesses can effectively optimize their businesses during these uncertain times. As Jackisch emphasizes, “Get started yesterday.” Proactive planning and strategic pricing will position small and midsize businesses for success in today’s dynamic economic environment.

Related Resources

The CEO Pulse: Tariffs Resource Center

Handling tariff turbulence: Strategies for stability amid uncertainty

0 views