What’s worse than inflation?

When commodity prices surged and governments around the world pumped hundreds of billions of dollars into markets, crippling inflation was a major risk. However, demand is so soft that the Consumer Price Index (CPI) fell a record 1.0% in October. With the critical holiday buying season coming up, a lot of retailers aren’t even pretending that they will be limiting discounts. The New York Times notes that Online Sites Are Waging PreHoliday Price Wars, and a lot of them won’t survive– they simply can’t make it up in volume.

In both B2C and B2B, this is going to be a tough quarter. While there are no magic bullets, you can get better results with a lot less stress by developing an analytical framework to help you make decisions quantitatively, rather than by “gut.” Using your gut to guide pricing decisions while your gut is panicking is probably the worst way to set price, markdowns and discounts. Determine what you need to achieve, and your current plan for getting there. Determine the boundaries for walking away– whether it’s negotiated discounts or markdowns. And have a “3D” plan that lets you move more creatively than just tweaking the price lever. At a simple level, this means unbundling to allow you to serve more of the demand curve without hurting margins or destroying your value proposition. It also means using discounts effectively to exchange value, rather than just giving value away.

Don’t do what one online service provider did. They recently sent emails to some of their former customers, with the message “just in case price was the reason you stopped using us, we’re going to offer you over 50% off.” Not only is this unlikely to get a lot of former customers back in the fold, it’s going to ensure that the ones they get back are the price buyers. And it conditions all of their customers and prospects to push back on price. (Incidentally, we didn’t stop using them because of price. We actually decided to pay more for a similar service that offered better value.)

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