There’s No Time to Wait – One of the Most Important Corporate Survival Activities in This Time of Crisis and Thereafter, is to Maintain the Margins via Price Optimisation!
As businesses would re-open and operational adjustment would begin, companies will struggle to retain and keep their customers. The competition will fight more fiercely and relentlessly for their “slice of the cake”.
What has started as a health crisis, has now been transformed into a big global economic crisis, a vortex which keeps pulling us down. No one can predict how shall COVID-19 develop, how many phases it will have and what would be the effects from the pandemic.
Even the predictions from distinguished institutions, consultancy agencies and state bodies change on a daily basis and still lack the accuracy. However, there must be a solution and even an opportunity in any crisis and challenge. Even though much can be learned from the crises which these generations have experienced, the entire situation cannot compare to anything in the past, primarily due to the lack of knowledge about the corona virus COVID- 19 and the globalization level. Unlike any other health crises in the past, the globalization had an enormous impact on the speed of spreading the virus and huge negative effect on the economy. Due to the recommendations and restrictions imposed worldwide, some companies were forced to close; some had significant decrease in their revenues, while some of them continued to grow due to the increased demand.
As businesses would re-open and operational adjustment would begin, companies will struggle to retain and keep their customers. The competition will fight more fiercely and relentlessly for their “slice of the cake”.
Millions of people worldwide struggle to keep their income and try not to spend much, except for the most essential products. Will the consumers gradually start purchasing more luxurious products or shall the entire situation make them change their habits into differentiating between “not-so-much-needed” products and, on the other side, affordable products whose purchase will increase?
At the moment, being on the left side of the V -graph, the necessary step all companies must take is to reduce the expenses or lay-off their employees which can lead to short-term positive effect. This is needed to stop the bleeding, but not enough to cure the wound, since this is not a crisis of expenses, but a crisis of demands. Therefore, in order to find ourselves on the right side of the V-graph, we must not allow any dramatic reduction of the expenses, as such action can further jeopardize the business. What we need to do is carefully define an efficient pricing strategy, invest in building relations with the key clients-consumers, define structural measures in order to sustain the brand value and not bring the margins into question. Companies that will succeed in this will keep themselves afloat unlike many others.
What is most important in this period is – defining the right pricing strategy!
The marketing theory shows that from the 4Ps, only the price is the one generating company profit. There are many factors affecting the price of a product or the product portfolio – customer segment, demand, competition, seasonality… In particular periods, such as the situation we have at the moment, promotional prices are being defined, bundled prices, etc. which can greatly impact the wanted sales and profit goals of the companies.
Under circumstances when the market situation changes “in the blink of an eye”, the definition of so-called “optimum price” and the possibility for fast change is crucial. Typical example at the beginning of the pandemic was the price of the protective masks, gloves and disinfectants which caused legal intervention in some countries in order to prevent unethical setting of prices.
The companies should use their resources and data, monitor and analyse the information on the market where they operate on a daily basis and timely respond with a price which will bring them the biggest sales at highest possible prices. Only the companies that will succeed in this mission will be successful after the crisis.
The goals deriving mostly from the marketing strategy and the decisions regarding the company position should be defined on a long- and short-term.
In such case, some companies will focus on their short-term goals and set “survival” prices or maximize the current profit; however, they should not neglect the long-term goals in order not to lose their position or protect and even build their market share.
Setting a pricing strategy would mean managing of the profit.
The protection of revenues and margins must be an imperative for the companies. The companies must react fast through strategic pricing policy which will carry them forward. It must communicate with the employees and consumers as well, in order to keep their trust.
- The minimum price one must not go under should be always known.
- The expenses must be controlled.
- Introduction, if possible and necessary, of alternative products that will meet the needs of the purchasers.
- Identification of loyal customers and ensuring best value of the cash.
- Monitoring the customer needs.
- Continuous gathering of data on the market and sales channels.
- Mandatory monitoring of the consumer behaviour and changes in their habits and values, as well as evaluation of the relation, whether they want and can they allow themselves to purchase a particular product or service.
- Analysis of competition activities.
- Analysis of price transfer policies, not only for their own businesses, but for the economy in its entirety.
- Establishing a team working on such analyses and defining different scenarios, stress tests and forecasts which will help in reducing the risks and defining the right steps.
- Negotiations in terms of prices and contractual terms and conditions with particular key purchasers.
- Compliance with the legal regulations, for the purpose of ensuring work ethic.
THE STRONG AND VISIONARY COMPANIES, USING THE CRISIS AS A CATALYST FOR CHANGES SHOULD INTRODUCE TRANSFORMATION PROGRAMMES ON THE FOUNDATIONS OF THEIR BUSINESSES VIA OPTIMIZATION OF THEIR PORTFOLIO AND PRICES, AS WELL AS REORGANIZATION IN ORDER TO ENHANCE THEIR PERFORMANCES.
The companies lacking resources for such type of analyses and defining the prices by intuition or according to the cost method only will suffer great damage and face great problems.
The companies must be transparent and contemplate on how to cooperate with other factors in the departments they operate in, and even with the competition in order to optimize the effects from the crisis. In the event when the prices are reduced in order to ensure sales, the market can be disturbed and everything can go downhill. On the other hand, if the prices increase due to COVID-19, intervention will be needed by the consumers and countries in order to prevent monopolization and even misuse of dominant positions on the markets.
Apart from the increased demand for toilet paper, face masks and disinfectants, the demand for materials for restoration of bicycles also increased in our country and worldwide, since the people, having a lot of free time, decide to make changes in their homes, and since the fitness clubs and public transport are closed, the majority of people turn to bicycles for recreation and as a mean of transport.
In such situation, the companies should maintain price discipline i.e. must not panic and immediately lower the prices. For the purpose of realization of sales, the worst thing that could happen is to lower the prices. Unfortunately, the demand is not flexible in such situation. The price reduction can cause several possible scenarios: price war with the competition, whereby the consumers will use such occasion and purchase larger quantity of products, thus taking away the profit and any future sales and, in the worst-case scenario, the perception and expectations of the consumers will change in the long run, which will lead to losing the position and brand devaluation.
The analysis of consumers, changes in their habits, and most importantly, the changes of their values are essential when it comes to product portfolio management and pricing strategies.
The strong and visionary companies, using the crisis as a catalyst for changes should introduce transformation programmes on the foundations of their businesses via optimization of their portfolio and prices, as well as reorganization in order to enhance their performances.
