Pockets of Deflation
Your customers took the price hike – everything was going up. Then they took another one, begrudgingly.
Another tick up was due to supplier costs, commodity costs, inflation, labor demands – the justifications go on.
But now we’re seeing pockets of Deflation. Some commodities may have come back down in a big way, and your customers want to know why their price doesn’t reflect the decrease they see in the market.
What to do? Do you “peanut butter” decrease by reducing commensurate with commodity decreases?
There are three problems with that approach:
- If you price your products cost-plus, then lowering prices in line with cost decreases will mean a big hit to your gross margin dollars.
- If your customers all pay different prices for the same product, lowering them all doesn’t make sense – some customers will still be paying well below market rates and others way above.
- Don’t forget, not everything has come down. Your labor charges haven’t decreased nor have the other half of the COGS you need to manufacture your goods, so you can’t afford a straight write-down.
So, what then?
The key is using a scalpel, not a hatchet.
We need to be able to identify which customers will accept that increased cost, which won’t, and how much you need to give back to stop the account from churning.
Ok, so a few accept the new prices, but we can expect many will not. That makes inaction not viable. Just like inflation pushed us to act and increase, your customer base has started to demand a decrease.
We need to balance customer expectations and profitability; that’s easier said than done when looking at hundreds or thousands of products across a big list of customers. The threading of that needle is possible with the right data, team, and technology.
There are steps you can take to start today without rocking the boat. Book some time to speak to an expert today and see if you’re ready for the next deflation, stagnation, or inflation event.