In times of uncertainty, with the stakes being high, many companies will only touch pricing in a reactive way. They see pricing as an “In Case of Emergency, Break Glass” last resort. The basic arithmetic is tantalisingly simple when a business wants to manage a margin position amid cost and volume uncertainty. All one needs to do is get “price” as far away from cost as possible, and that means raising prices. In our view, drawing on our experience as the world’s leading price consultancy, we would argue that following that arithmetic blindly would be neither intelligent nor responsible.
Taking a pure, short-term price increase without the ability to defend it is the equivalent of smashing that “In Case of Emergency, Break Glass” panel to pull out a fire extinguisher. Odds are, if you are breaking that glass, you are already in a bad situation.
Bluntly raising prices risks reputational damage; the press and the public are vigilant about unjustified or suspicious price increases. Even more importantly, a blunt price increase is often the product of an incomplete thought process on what the effects of the price increase will be and how to implement it.
One statistic backs up that point clearly. The average realisation rate for price increases in 2017 was only 37 percent vs. plan. That means for every pound of price increase a company counted on and planned for, it achieved just 37 pence. Whether that gap is explained by overly enthusiastic projections, weak sales performance, or a combination of both depends obviously on the company and the market. What is universally true is that many things that can go wrong when a company tries to raise prices, including the possibility that the decision itself may have been ill-advised.
This is all the more reason to pursue creative, intelligent, and responsible price management in a time of uncertainty such as the ongoing Brexit negotiations. The mandate for managers is to find ways to improve the pricing decisions and improve their implementation. So how can companies keep themselves on the upper end of success in maintaining a strong margin position? There are three factors to keep in mind, and all apply acutely to a period of uncertainty such as the Brexit negotiations.
Price management is the only remaining option for companies who want to craft a viable gameplan for surviving now and thriving later. What separates these thrivers, survivors, and strivers is a strong capability around price management: clear objectives and strategy, knowledgeable people, streamlined processes, and flexible systems.
Working on price isn’t easy – which is why most companies avoid it. Yet, despite this, every year, thrivers knuckle down and do the hard work to continuously improve their pricing capabilities and consistently reap outsized rewards. What kind of company do you want to be?”