HOW TO: Safeguard business profits and future growth
Although there is a possible economic recovery on the horizon, it will still take time for markets to return to normal trading conditions. In this fierce environment, companies are desperately seeking opportunities to secure or return to profitability. As traditional options for cost reduction have become exhausted, a structured and optimised approach to pricing is needed to protect your company's profits in the short term, and to prepare for future growth once the market conditions improve.
Below are some pricing levers that can act as best practices across B2B industries.
1. Reduce volume, not price and clearly communicate it to the market
In contrast to previous recessions, a higher proportion of market leaders understand the rules of the market. Instead of reducing prices in an attempt to gain volume from competitors (potentially triggering price wars) they cut production to maintain price levels. As a cut in production is less harmful to profits than a cut in price, companies such as ArcelorMittal drastically reduced production around the world to combat oversupply. Unfortunately, some sectors ignored this approach, as the disastrous results in the automotive industry demonstrate.
2. Provide alternatives at the lower end of market
Many customers are no longer willing to pay for top-tier products in certain categories. Instead of focusing on the higher end of the market and then selling at high discount levels, an alternative mid- or lower-tier range can reduce pressure on price levels. Furthermore, contamination of premium segments can be avoided if stringent price fencing is applied. Whilst this is appropriate during times of crisis, it is also relevant when companies enter lower price regions like Asia.