Pricing with Confidence, 2nd Edition

CHAPTER 7Rule Seven

Understand Your Market

To optimize pricing strategy, businesses need a clear and current understanding of markets: the behavior of customers and competitors in the context of the Four Ps (product, price, place, promotion). Moreover, markets are continually influenced by variables such as supply shortages, economic shocks, inflation, labor volatility, pandemics, and wars. Knowing how to respond to each variable is the key to pricing success.

Inflation can be a benefit for businesses that understand their customers, appreciate the value they deliver, connect that value with the go-to needs of the customers, and are nimble enough to act quickly in the face of rapidly evolving business conditions. For businesses lulled into complacency by years of operating in stable economic conditions, inflation can be an existential threat. In this chapter, we'll focus on the market triggers of inflation on pricing and how businesses can prepare themselves.

Over time, inflation significantly impacts every market pricing decision. Inflation has many causes, but the two main triggers are demand-pull and cost-push. Demand-pull inflation happens when an increase in the demand for goods and services leads producers to raise prices to maximize profits.

Markets are the playing field on which enterprises evaluate their strategy and tactics for delivering value. The elements of the strategy include decisions about price, terms and conditions, sourcing, and customer service. An understanding ...