Often companies react to critical times in the market with a strong cost-cutting, a measure that entrepreneurs and top managers have recourse in times of economic uncertainty, such as the current one. At this stage, however, focusing on reviewing pricing strategies can be an even more effective investment.
“Pricing right is the fastest and most effective way for managers to increase profits”. McKinsey & Company – The power of pricing.
Dynamitick’s CEO, Federico Quarato, explored the issue of pricing strategies to be implemented in a period of crisis and instability in the article published by Forbes Strategies for the post-Covid-19: the price leverage in times of uncertainty.
For example, in sectors where price changes are transparent to consumers and competitors, such as in the transport sector, the reduction of prices by one player leads to an immediate reaction from consumers who will “demand” a similar adjustment from other market players.
What is being generated is a real price war and in such a scenario the tactics to be put into play are essentially 3:
- Attack and be the first to change pricing. Before embarking on this path it is necessary, however, to analyze in-depth the cost rumors and its positioning against competitors, to understand the real potential of the price reduction action, both short and long term.
- Defend. The choice to opt for a defence of your price positioning can make sense in widely controllable market situations. For example, some companies may decide to produce low-price versions of their premium brands, to be launched in response to possible price reductions by competitors.
- Avoid fighting directly. Where it is possible to adopt a new pricing model, you may choose to adapt your business model to the needs of your customers, who have changed during the crisis. We find an example of this in what happened after the 2008 crisis in the durable goods market with the introduction of new revenue models based on leasing or rental.
At this moment, pricing is fundamental to achieve the goal of maintaining or increasing market share. Developing a strategy to respond to each of these challenges is the best way to be in the winning position when the market restarts.