Pricing Strategy in the COVID-19 World
There is no one, easy answer for a pricing strategy in today’s world. Shelter-in-place, social distancing and essential business are words and phrases we are hearing in a new context. As a business leader you should spend some time thinking about your short term and long-term business strategy in this new world, which will then help shape your pricing strategy. In the short term, the first question is, as we sit today, can we survive with our current cash flow.
If the answer is no, then there are some very specific, short term pricing strategies you must do today. Every pricing strategist will tell you to understand who your customers are, why they buy from you and what value you bring to them. Your job is to then structure you pricing strategy to augment and enhance that value, even if you are selling a so-called commodity product. Simply put, use the 80-20 rule and segment your customers into the 20% that give you 80% of your revenue. DO NOT RAISE OR LOWER YOUR PRICES FOR THESE CUSTOMERS. Reward them for loyalty. Find ways to help them justify buying from you AT THE CURRENT PRICE, rather than leave you and go to someone else at a cheaper price.
What value, besides the product, do you personally (or your employees) provide? How can you increase that value to your customer? There are many ways to do this: Bundle( and provide bundled pricing) with other products they current do not buy from you, set up standing orders so you can forecast inventory, accept larger packaging sizes with the bundled orders (saves freight, invoicing, etc.), start a loyalty program if you don’t have one, offer discounts on future purchases made today. Be transparent with your customers on tariffs, increased freight, delivery, etc. There are many more and I can help you or direct you to other readings that will spur thoughts and ideas.
If the answer is yes, congratulations. DO NOT RAISE PRICES just because you can. In the long run this will hurt your business. You must continue to build your relationship with your customer. Jeffery Gitomer, a sales coach, say “All things being equal, people buy from their friends. When things are unequal, people buy from their friends. “Evaluate the value you provide, your relationship with your best customers and increase both. Then you can institute small price increases where justified. You may offer delivery or set up that your competitors do not offer—charge for that. You may package custom quantities—you can charge for that. Some of the ideas above will also increase your value and allow you to keep your customers and keep your price.
In the long run, the basic pricing strategy that I have lived by is value-based pricing. Understand who your best customer is using data driven metrics not gut feel, understand what those customers buy from you and why they buy those products, understand your value to them and then work to increase that value.
Feel free to reach out to us to chat, to understand, to help or if you need help. This forum is for all of us.