Price increases will be an inevitable necessity for many businesses over the next few years as they navigate what we expect to be an inflationary environment. Our experience shows that large, reactionary increases, implemented only after costs have risen to unsustainable levels, are not well received by customers. This approach can lead to stress or, worse, market share loss at a time when businesses may already be overextended.
Instead, have confidence in our forecast for rising overall prices and make increases smaller and more frequent. Consistent, incremental adjustments are easier for customers to absorb.
It is also critical to clearly communicate your competitive advantages. Reinforce the reasons customers choose your products or services over alternatives and do so even more consistently than you raise prices.
Keep in mind that our outlook for rising prices is broad. Business leaders should review data and forecasts for their specific inputs, as cost trends can vary significantly by industry and market.
2. Overfixation on the Top Line
Input costs are likely to rise for many businesses in the coming years. Growing your top line through market share expansion and pricing strategies will be important for maintaining profitability.
That said, controlling costs that are within your influence is equally critical. Labor and power are two expenses likely to increase, driven by an aging workforce and rising energy demand from data centers and other technology or electrification-related trends.
To manage electricity costs, consider auditing usage and engaging third parties to identify inefficiencies. In some cases, negotiating a fixed rate for a defined period may also be possible.
For labor, improving efficiency can help reduce hiring pressure. Cross-training employees and expanding skill sets may allow you to do more with your existing workforce. Investments in labor-saving technology or capital equipment may also be viable, but only if your market can deliver an acceptable return before the downturn of the 2030s.
3. Singular Market Focus
Will your market remain viable in the 2030s, when most industries will face a more severe downturn than current decision-makers have experienced? Will your business be positioned to endure that environment?
If your primary market is expected to experience sharper shocks, it may be prudent to increase exposure to markets that offer relatively greater stability. ITR Economics can help evaluate these risks and opportunities.