The US Producer Price Index rose 9.8% for finished goods for the 12 month period ending in July, the largest jump in 27 years. Businesses are stuck between the rock of rising costs and the hard place of weakening spending. Passing along price increases could further dampen demand, while not passing along price increases could put you out of business.

Surging energy costs fueled the increases (what a terrible and unintentional pun, but once it was there I couldn’t take it out). Some of the companies we work with are facing double-digit cost increases in their supply chains, sometimes more than once per year.

What can you do?

Start by understanding what your customers truly value. Often, customers in different segments value different things. Some might love your products, while others place a premium on your responsive service. You can price more competitively on your product offering by unbundling the premium service that you may have thrown in for free.

Quantify your benefits for customers. If you sell a product at a premium price, even double the competition’s, you might still be a bargain if your product is a small part of overall costs, but has a big impact on how efficiently other investments perform. For example, a machine on a factory floor that offers less downtime is extremely valuable. If you don’t do anything better than the competition (include service, support, and other aspects of the overall customer experience) you have to compete on price. Or figure out how you can do something better.

Many companies lack the process, tools, and data to do this effectively. Now might be a good time to think about how to put those in place.

As a political aside, I need to insert a rant here: a lot of inflation comes not from stuff getting more expensive, but from the dollar getting cheaper. Over the past few decades, no one has had access to cheaper credit than Uncle Sam. Unfortunately, Uncle Sam is less trustworthy with credit than a giddy real estate speculator during the condo craze. Despite all the (hot) air time devoted to inane non-issues in the current presidential campaign, no one seems to be pressing for a meaningful discussion of the economy, the dollar, and our credit system. While many in the media noted that the Federal Reserve is now suddenly very concerned about inflation, no one wants to talk about the elephants in the room–massive growth in government spending, mainly on discretionary wars, the military-industrial complex, and entitlement programs designed primarily to benefit corporate donors, and the regressive nature of inflation.

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