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For global executives, rising inflation is now an even bigger concern than the pandemic.
Going up
With costs on the rise, your pricing power may be all that’s protecting your margins. Do you have what it takes to raise prices?
Passing the buck
In this edition:
A quick briefing in five—
or a fifty-minute deeper dive
Marking up
When inflation goes up, margins can go down—unless companies have the power to raise prices.
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The coronavirus effect on global
economic sentiment
Transitory?
Capital markets are betting on higher inflation, too.
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Ten pricing levers
Getting the most value from pricing requires setting the right initial price, optimizing discounts and rebates, and looking for where the margin bleeds away.
The coronavirus effect on global economic sentiment
Dive deeper
Global Economics Intelligence executive summary, November 2021
Article
Survey
Pricing power most important in business: Buffett
Economic Times
Dive deeper
Winning the race with inflation: The pricing opportunity for industrial companies
Article
Dive deeper
Transform
Boosting your pricing power may also require changing mindsets and behaviors, and building new capabilities in four areas.
Global Economics Intelligence executive summary,
November 2021
Article
Dive deeper
Defying cost volatility:
A strategic pricing response
Article
Dive deeper
Pricing power most important in
business: Buffett
Economic Times
Winning the race with inflation:
The pricing opportunity for
industrial companies
Article
Potential risks to economic growth in respondents’
countries, next 12 months,¹ % of respondents
0
10
20
30
40
50
¹Out of 18 risks that were presented as answer choices in September and 19 risks that were
presented in October. Sept 2021, n = 958; Oct 2021, n = 902.
²Asked only in October 2021.
Supply-chain
disruptions
Inflation
COVID-19
pandemic
Labor
shortages²
Domestic political
conflicts
Geopolitical instability
and/or conflicts
Sept 2021
Oct 2021
Implied inflationary expectations from 10-year TIPS yields,¹
% (daily), 5-day moving average
2007
2021
¹Spread between T-bill and TIPS of same maturity (updated through Nov 12, 2021).
–0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Investor Warren Buffett to the Financial Crisis Inquiry Commission
—
The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.”
“
Attribute-based pricing (ABP): set price based
on product performance and other attributes
Fixed-ratio pricing: reprice spares and
consumables as percent of base unit
Set configuration pricing: align base unit based
on attributes and adjust configurations
Value-based pricing (VBP): quantify lifetime
benefits vs the next-best alternative, such as
labor productivity, footprint, and throughput
Reset discount structure: based on distributor
performance and product differentiation
Reset commission structure: based on value
added (eg, demand generation or qualification vs
fulfillment)
Deal scoring: guide new deals using dynamic
deal scoring to provide right discount
Change order as profit center (COPC): institute
process to price and charge for change orders
driven by customers
Closed-order variance (COV): minimize cost
increases arising during project execution,
identifying and fixing root causes
Pricing-performance management: monitor risk, compliance, and value-capture metrics, clear delegation of authority (DOA), etc
Optimize
discounts
and rebates
Manage
leakage
Set the
right price
Industrial-products example
Build your pricing strategy on data-driven insights that connect historical and current cost
pass-through performance; identify outdated, margin-bleeding contracts; and provide the logic and language needed to credibly and transparently talk to customers.
Deploy advanced analytics to help forecast changes in raw-material costs, imbalances between supply and demand, and future end-market prices—and to adjust pricing and contracting approaches to fit dynamically changing circumstances.
Build the confidence and conviction that sales teams need to hold effective price-change conversations with customers through training (eg, role-
playing price-change conversations), updated incentives, and cutting-edge analytical pricing tools.
Modify key pricing processes and policies to track which customers have been contacted, which are at risk, what price levels have been approved, and whether the business is on track to achieve its pricing goals.
Get the data
Forecast
Empower
Monitor
Defying cost volatility: A strategic
pricing response
Article
The Five Fifty is edited by Lang Davison, an executive editor in the Seattle office.