Last Updated Sep 16, 2008 12:46 PM EDT
- The Find: While the dismal news from the markets today indicates the economy is likely to be heading down for a while longer, input prices continue to go up, complicating pricing decisions for many companies, but there's expert help available for firms struggling to price their products while stuck between an economic rock and a hard place.
- The Source: "Pricing in a downturn" from The McKinsey Quarterly (free registration required).
- Be vigilant in monitoring pricing policies that reduce revenue--such as volume discounts, rebates, and cash discounts--as well as cost-to-serve, including freight and sales support. In the current downturn, rising costs and declining demand can cause these elements to change more dramatically and quickly than they have in the past.
- Use transaction-level data to measure precisely the profitability of each customer to detect if the cost to serve particular customers or declining order volumes are nudging those customers below target profitability levels.
- Adjust to changing customer needs. Downturns always prompt changes in customer needs .... The dynamics of the current downturn mean that such swings can occur even more rapidly. In this environment, the best companies are constantly assessing--through market research and direct contact--how economics are changing for their customers.
- Update price sensitivity research. Dramatic increases in energy and food prices have made consumers much more sensitive to prices across a wide range of product categories.... Market price tests become obsolete after just a few months.
- Monitor your industry's microeconomics. Radical shifts in costs and demand have thrown previously predictable market pricing mechanisms into chaos. Responding correctly requires a keen understanding of the microeconomic forces at play at the industry level.
- Study your suppliers.... this downturn demands that companies reexamine not only the microeconomics of their own industries but also the microeconomics of their suppliers' industries.
The Question: What impact has the downturn had on your company's pricing?