Pricing strategy during the hottest economic downt

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Pricing strategy in the economic downturn

during the economic downturn, due to the decline in demand, overcapacity and increased price sensitivity, various factors are jointly driving product prices down. Therefore, correct pricing is always a challenging task. In most economic downturns, the costs of raw materials, raw materials and other upstream supplies, as well as customer service costs (such as delivery costs), tend to stabilize or even decline due to reduced business activities. As a result, the decline in downstream product prices can at least be partially offset by lower upstream costs. However, in the current economic environment, the weak demand of end-users not only makes it difficult to maintain product prices, but also the sharp rise and variable input costs mean that enterprises in trouble are being hit on both sides

how should enterprises apply inorganic nanoparticles or inorganic particles and organic polyurethane "hybrid bond" reaction pairs? In this unusual economic downturn, enterprises need to manage various customers and transactions more accurately. Therefore, the calculation performance calculates the profitability of 1000 hours of experimental results with experimental data within 100 hours, cultivates richer insight into the changing needs and price sensitivity of their customers, and better understands the microeconomic conditions that affect their own industry and the industry of their suppliers. In the current challenging economic environment, in order to maintain the best possible balance between sales volume and profit margin, we have brought together six pricing strategies

monitor sudden changes in price structure

enterprises should always be vigilant to monitor pricing policy changes that will reduce revenue, such as total discounts, rebates and cash discounts, as well as service costs (including freight and sales support costs). In the current economic downturn, rising costs and declining demand may cause these factors to change more violently and rapidly than in the past. For example, the rapidly rising fuel price is putting great pressure on the delivery cost. 1. High precision and high-frequency data collection of Jinan experimental machine factory The experimental object does not need a large force, and the tension measurement range does not need to be large, so the accuracy of the force value is high Generally, it is required that the force value with more than two decimal places can be obtained experimentally In addition, because the tensile property of the test object requires several tensile values in the tensile process, and the tensile experiment cannot be repeated, the timely and accurate recording of the tensile force value of each experimental section plays a very important role in the success or failure of the experiment. Declining demand means that some customers may still enjoy total discounts that they should no longer enjoy. Enterprises adopting best practices are checking their bagging profit waterfall analysis data 1 more frequently (these data show how much profit they can actually make from each transaction), and adjusting their pricing policies accordingly, for example, increasing the freight fuel surcharge for each order. In today's economic downturn, if we do not pay close attention to the pricing policy and make a rapid response, the loss of revenue in all aspects of the transaction will quickly devour the profits of the enterprise

monitor the profitability of customers

enterprises should use transaction level data to accurately measure the profitability of each customer. Through this evaluation, enterprises can find out whether the service cost for special customers or the declining order quantity is approaching those customers below the target profitability level. For example, in this economic downturn, the scale of many customer groups is shrinking, and the service cost is also getting higher and higher. Many experts also said that industrial enterprises have found that the profitability of more than 20% of their customers has fallen below the breakeven point. This forces the enterprise to selectively raise product prices, and if possible, reduce customer service costs by reducing delivery frequency, reducing sales support services, or obtaining orders through other channels

adjust to changing customer needs

an economic downturn will always change customers' needs and their estimated profit level when choosing suppliers. The development trend of the current economic downturn shows that this change may come more rapidly. In this economic environment, the best enterprises are constantly evaluating how the economic situation will change their customers through market research and direct contact with customers. More importantly, they are making a rapid response based on this assessment and readjusting their prices and profit expectations. For example, a plastic resin supplier developed a fast curing resin (aimed at improving the production capacity of injection molding machines) during the economic boom, and now it has developed a resin with low cost but slow curing speed. This new resin product helps the supplier's customers reduce costs, because injection molding machines do not need to be fully produced during economic downturns. As other resin suppliers have raised their product prices, many resin manufacturers regard this slow curing resin as an attractive alternative product. As a result, this resin supplier can maintain a fairly good profit margin even if it sells this alternative resin at a lower price. In the current economic downturn, under the joint action of lower demand and higher input costs, in order to maintain an appropriate balance between cost/profit, it is urgent to take such adjustment measures

timely update the research results of price sensitivity

the sharp rise in energy and food prices has made consumers more sensitive to the prices of various products. Every rise in the price of daily necessities (such as food and fuel) will reduce some disposable budget expenditure, which will sharply increase the price sensitivity. The market price monitoring results will become obsolete after only a few months. Therefore, in order to obtain correct price data, we should immediately re carry out pricing sensitivity research and market price monitoring to track these changes in time

monitor the microeconomic situation of the industry

the sharp changes in costs and demand have made the previously predictable market pricing mechanism chaotic. In order to make a correct response, we need to have a deep understanding of the microeconomic forces that play a role at the industry level. For example, a building materials company found that its position was becoming precarious as the economic downturn deepened: the sharp decline in the U.S. housing market meant that the demand for building materials was shrinking, while raw materials, energy and transportation costs were rising rapidly. In response, the company reassessed the microeconomic situation of the building materials industry and analyzed the latest supply, demand and cost dynamics in detail. According to these new information, the management of the company reduced the production capacity of a factory located in a certain region, because reducing supply in the region will not cause a shortage in the local market. A year ago, the reduction of production capacity would have little impact on the market price. Now, the reduction of production can better maintain the balance between supply and demand, and it is estimated that the market price can be maintained at a level 10% higher than that of no reduction

study your suppliers

the extreme volatility in this economic downturn requires enterprises to re study the microeconomic situation of their industry, as well as the microeconomic situation of their supplier's industry. Recently, a specialized chemical enterprise created a dynamic model for the recent industrial supply, demand and cost investment of a major raw material. Using this model, the enterprise predicted that the price of this raw material would rise by 15% in the whole industry three months in advance. This prediction is of great significance, because in the past six years, the annual price rise of this raw material has never exceeded 5%. After the chemical enterprise was aware of this upcoming and unusual price rise, it began to add relevant clauses including the price rise of raw materials to the contracts signed with its customers. If this clause is added after the announcement of the price rise, it will be strongly opposed by customers. Before the announcement of the price rise, the price rise clause of raw materials was added, which created an industry precedent of transferring the rise of costs to customers

about the author: Cheri eyink is a consultant of McKinsey Cleveland branch, and Mike marn is a director of the branch; Stephen moss is an associate director of McKinsey Stamford


1 for a discussion on the waterfall analysis of bagged profits and other pricing tools, see "the power of pricing" written by Michael v. Mann, Eric v. Roegner and Craig C. zawada, McKinsey Quarterly, February 2003

this article is translated from: "pricing in an inflationary shutdown" (end)

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