The Find: With the economy tanking, and inflation on the rise, pricing is both more important and trickier than ever, but expert guidance is available to keep managers from making critical mistakes.- The Source: An interview with Tony Cram of Britain’s Ashridge Business School in the Financial Times’ Management Blog.
The Takeaway: The current economic climate might be the worst some managers have yet seen. With customers so jittery, the stakes for getting pricing right are high, and managers may be unprepared to avoid common pitfalls of pricing in tough times. FT’s Management Blog, however, has an interview laying out three key insights for managers tasked with pricing products:
- Understand how price-sensitive customers will behave - and act on that knowledge more quickly than competitors.
A recession, Cram optimistically asserts, is an opportunity to learn faster about changing customer behavior and gain advantage through this insight. Like a good driver, Cram suggests, you look not only at the taillights of the car in front but the car in front of him (and in front of him). By paying attention to your customers’ customers (and their customers), you can identify problems before your business crashes into some unforeseen pricing reality.
- Consider the longer-term strategy before changing prices.
“The great danger is you take sensible short-term decisions that screw up your long term brand value,” says Cram.
- Be sympathetic to cash-strapped customers - and take care not to start a destructive price war by accident.
Make sure your price cuts don’t appear to be panicked reactions to falling sales. Your rivals will be watching you closely, and you don’t want to start a price war. If that’s a possibility, it’s better to promise to match competitors’ prices. And if it’s your competition that’s slashing process, think carefully before following suit. Your rival’s decision, Cram says might be ”the idiot decision of one manager who is going to get fired.”
(Image of marked-down red lantern by kennylouie, CC 2.0)
