Inflation has almost got the whole world in its grip, and there’s no sign of it receding soon. The situation is so nasty that even most pricing tools and algorithms are failing to account for such drastic price hikes.
Many B2B companies are struggling to come to terms with the surging costs of the workforce, digital ads, marketing & sales software, etc., along with supply bottlenecks. All of these have brought the topic of B2B pricing into the limelight. Senior leaders are well aware that inflation has adverse effects on the profits of companies that don’t manage it tactically. In simple terms, when input costs go high in the graph, the only way to combat it is to bring significant changes in pricing.
Pricing Tactics to Combat Inflation Pressures Respond Faster Than Ever
Businesses need to adjust their prices right away when costs spike up to avoid margin decreases. The longer the delay between the cost hike and the price-raising decision, the more the risks of profit decline.
To this day, most B2B companies prefer adjusting prices annually, biannually, or quarterly rather than determining them based on input costs, competitor prices, or foreign exchange rates. While such practices may seem fine during economic stability, they can destroy the margins when the market turns hostile. Companies need to make fundamental changes by introducing new pricing methods that act in accordance with market risks and opportunities.Consider Raising Indirect Prices
Besides imposing direct price increases as a consequence of inflation, B2B companies can consider raising indirect prices. These can include charges for added services, expedited shipping, and extended payment terms. Also, customer behaviors that negatively affect the profit margins, like small orders and urgent orders, should be strictly monitored. Companies need to set firm policies mentioning when they’ll allow deviations from the set terms and what they’ll require in return.
Enforce Contract Agreements
Many B2B companies note down price increase contingencies in their contracts but, in reality, don’t enforce them regularly. Some even may not be aware of them. Companies need to double-check the contracts for each customer, evaluate the importance of enforcing them and pass on the relevant data to employees to back the difficult conversations with the customers. Specifically, customers should be reminded of the terms that might have been waived during exceptional situations like the pandemic to avoid any conflict in the future.
Adjust the Product Range
When inflation hits, the products/services a company sells might be of greater importance than who it’s selling to. It becomes critical to have an SKU-level view of profitability instead of just a customer-level view. Dropping the products/services that yield low profits and focusing on the ones that are most profitable is a sensible move. Post that, maximizing the stock-keeping units is also required as the product lineup is just as crucial as the target market.
Companies that are holding back themselves from adjusting their pricing, thinking that it will piss off their customers, couldn’t be more wrong. The consequence is set to hit them eventually as long as the inflation continues. So, is there any point in delaying the obvious?
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Originally published: B2B Pricing in the Face of Inflation
