Inflation feels like a new threat to the economy, but in reality it is an old ghost from the past. Dealing with inflation as business managers is about protecting profit margins, maintaining vendor and customer communication and relationships, and, in today’s tight labor market, making sure your employees are properly compensated. This is a period when a well-thought-out, competitive-advantage-based pricing strategy is imperative.
How would you react to a supplier raising prices? If you need what they're selling, alternatives are limited, and the increase is deemed reasonable, then, all else being equal, you will accept the price increase. You will, that is, IF you find yourself in a position to pass the price increase through to your customers.
The chart above shows that business-to-business inflation as measured by the Producer Price Index will likely be easing in 2023. You may want to keep this in mind when formulating your strategy or developing a mindset. The current torrid trend should not be linearly extrapolated into the future.
If your prices aren't where they need to be to keep your margins healthy, there is a strong chance your customers will accept a price increase if you can demonstrate the cost structure response you are faced with and that you are bringing something to the table to further make the price increase acceptable. Perhaps that something is simply that you have the material, and your competitors don’t. Perhaps it is the superior service that accompanies whatever you are providing. You have a proven track record.
If you want solid evidence to both help you decide on appropriate price increases and justify them to your customers, our Custom Price Index service can be an invaluable tool. We not only quantify the costs you are racking up to produce the goods or services that are unique to you in combination, but we forecast where those costs will be over the next four quarters. Such insights are indispensable in crafting a profitable pricing strategy and effectively protecting your margins.
Do you need help getting a handle on pricing next few years? We can help.