Price Changes Versus Cost Recovery

Flexible pricing has often become the key to survival for many companies

. However, they must now focus more on other considerations when formulating pricing strategies in this evolving economic climate: cost recovery, evaluating changing economic conditions, and targeting long term success.

Price changes done in isolation may adversely affect product profitability and your financial stability as the economy improves and costs increase unevenly.

Understanding customers perceptions of your product value and implementing new technologies to enhance service attributes or reduce pricing are a more forward thinking and effective approach to increasing your market share than simply adjusting prices based on emotion, gut-feel or feedback from Sales.

Think about using lower cost parts or design changes instead of heavy price discounting to improve value, maintain cash flow or increase volume.

Whats involved?

Identify price sensitive products: Integrate reporting systems, competitive intelligence and industry knowledge to identify which products may be at risk of sales declines due to lower cost alternatives. You must be able to understand and predict market dynamics and identify products vulnerable to cost shifts. Process improvements and commodity changes will establish customer value and bring long term returns as opposed to short term gains from deeply discounted prices, which can take months or years to overcome.

Re-examine commodity hedges: Your growth is dependant on keeping your eye on the ball and anticipating futures prices. Knowing if the prices of your raw materials are going to rise or fall in the futures market and being flexible enough to act fast will help increase profits and cut losses.

Maintain steady cash flow: Understand your quote-to-order-to-cash cycle to estimate the lead time for price changes versus cost changes, and recognize your window of vulnerability. Pricing and cost recovery directly impact your ability to optimize cash flow and improve your position.

Protect core products and customers that have a direct impact on your survival: This involves carefully analyzing performance by product and customer, measuring realization costs and making note of the competition. Re-examine large volume contracts to see which ones you may need to shore up, renegotiate, etc. to cover needed volume during the transition period.

Transcend Strategic Consulting (TSC) specializes in business evaluation, enhancing operational efficiencies and cash flow optimization. Our customized approach will deliver 10:1 return on your investment. For more on this subject and a copy of our Free Whitepaper, send an email.

by: Joseph V. Marigliano

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