David Gilmour shares an article on how to make inflation work for your business.
When I remember back to the late 1980s, I was doing my MBA and learning about economics for the first time. To that point I had lived much of my adult life in a high interest rate, high inflation environment and perhaps assumed that had always been the case. As the world of economics was being revealed to me, I saw times in the past when inflation had been quite subdued and interest rates had been around 5% — sounds high today, but at that time paying a mortgage at 18% interest rates, it seemed like some kind of Nirvana where life even as a poor student could be wonderful!
Now we sit here at 2022 having been through an almost unprecedented period of extended low inflation and low inflation and low interest rates.
The script has now flipped… many of the younger consultants at my firm feel that this is the way it has always been and always will be. Will they be right and this is simply a brief ‘transitionary’ period or will it prove to be a more enduring upward move? Either way, this creates a once-in-a-generation opportunity for businesses in most industries to reset their pricing in ways that in more normal times (i.e. the past twenty years or more!) would take perhaps years or involve taking considerable perceived risk.
The perfect storm of supply chain constraints coupled with historic low levels of unemployment are forces fueling inflationary pressures. For decades many businesses have been in a volume growth mindset to drive higher earnings. If you can no longer produce your way to greater profitability, what can you do? Clearly the answer for many businesses is that they now must turn to pricing to maintain their profitability, but they often have little experience in truly managing price – simply cost plus approach for whatever suppliers add to input prices just won’t cut it in this dynamic environment and leaves a unique opportunity on the table.
Key points include:
- What drives customer behaviour in reaction to price
- How pricing done well can improve profit
- Pricing to greatest advantage
Read the full article, Once-in-a-Generation Pricing Opportunity – Make Inflation Work for your Business!, on GilmourAssoc.com.