Pricing During a Recession: 5 things you need to know

As we all know, the COVID-19 pandemic has led to a global economic recession. And while many businesses are struggling to stay afloat, some are thriving in this new reality. So if you're thinking of ways to adjust your pricing strategy during these uncertain times, here are some crucial things you need to know From understanding your customer's needs to evaluating your competition, these tips will help ensure that your prices are fair and effective.

What is a recession?

A recession is an economic downturn that can last for months or even years. Recessions are typically characterised by high unemployment, low consumer spending, and stagnant or declining business activity.

While recessions can be painful for businesses and workers alike, they also present opportunities

During a recession, businesses may adjust their pricing to stay competitive and open their doors. Here are a couple of things to keep in mind if you're thinking about pricing during a recession: Firstly, know your costs and second, consider your competition.

How does a recession affect consumer behaviour?

Consumers who face an uncertain economic future tend to become more conservative with their spending. This behaviour is often referred to as 'recessionary spending' and can profoundly affect businesses, especially those reliant on consumer spending to drive growth.

Several factors can contribute to recessionary spending behaviour:

1. They may be concerned about job security and making ends meet, meaning they are less likely to take risks with their money.
2. Memories of hardship during previous recessions pressure consumers to save more and spend less
3. Media coverage of economic downturns can often exacerbate these feelings of uncertainty, leading to even more cautious spending behaviour.

Recessionary spending behaviour can have a significant impact on businesses. For example, demand for luxury goods and services tends to fall sharply during economic downturns, as consumers focus on essential items and reign in discretionary spending. Similarly, businesses that cater to big-ticket items such as cars or holidays may also see a drop in demand as consumers tighten their belts.

Of course, only some businesses are equally affected by recessions, and consumer spending patterns can vary significantly depending on the sector. However, understanding how different consumers behave during economic downturns is crucial for all businesses in today's climate of heightened uncertainty.

1. Value management

In these tough economic times, businesses seek ways to cut costs and increase efficiency. But one area that should be especially considered is value management.

Value management is a systematic process for maximising the value of goods or services. It can identify and realise cost savings opportunities, improve quality, or reduce time to market.

There are four main steps in the value management process:

1. Define value
2. Identify opportunities
3. Develop solutions
4. Implement and monitor results

The first step is to define value. What is essential to your customers? What do they value most? This will help you identify areas where you can make improvements.

The second step is to identify opportunities. Once you know what your customers value, you can look for ways to improve the quality of your products or services or deliver them more efficiently. This could involve streamlining processes, eliminating waste, or finding new suppliers.

The third step is to develop solutions. This involves creative ways to improve value without sacrificing quality or increasing costs. Once you have a few ideas, it's essential to test them out and see how they work in practice.

The fourth and final step is to implement and monitor results. Once you've identified and implemented changes, tracking the results is crucial to see if they are having the desired effect on your bottom line.

2. Alignment between the sales team and the pricing strategy

Another crucial area to be considered during recession is that should be considered is the alignment between the sales team and the pricing strategy.

When times are tough, it's even more critical that your sales team is aligned with your pricing strategy. This ensures they can sell your products or services at the right price and generate the maximum revenue possible.

There are a few things you can do to ensure that your sales team is properly aligned with your pricing strategy:

1. Communicate your pricing strategy clearly to your sales team. They need to understand what prices you're aiming for and why.
2. Ensure that your sales team has the tools and resources they need to successfully implement your pricing strategy. This might include market data access, pricing software training, or anything else that will help them do their job effectively.
3. Hold regular meetings or training sessions with your sales team to keep them up to date on changes in your pricing strategy. This will help ensure that they always know what's going on and can make necessary adjustments in their selling approach.
4. Set realistic targets for your sales team based on the revenue you're aiming for. They can adjust their selling methods accordingly if they know what revenue you expect them to generate.
5. Offer incentives for meeting or exceeding revenue targets. This will motivate your sales team to sell at the best price for the company while retaining customers

3. Focus on core customers and products

When pricing during a recession, businesses must focus deeply on their core customers and products. This means understanding your core customers and what they need or want from your company. It also means clearly understanding your costs so you can price your products and services accordingly. This may also mean that some of your attention gets diverted away from your less engaged customers or products that are not as popular. This is not necessarily a bad thing as it allows you to focus your resources on products and customers that are actually serving you.

Recessions can be challenging times for businesses, but by focusing on your core customers and products, you can weather the storm and come out ahead.

4. Don't make across-the-board pricing changes. Focus on each product and customer

In a recession, focusing on each product and customer when changing your prices is essential. Do not make across-the-board pricing changes, as this could alienate your best customers. Instead, take a close look at each product and customer, and tailor your prices accordingly.

For example, if you have a product that is in high demand during a recession, you may be able to raise prices slightly without losing business. On the other hand, if demand for your product decreases during a recession, you may need to lower prices to stay competitive.

It's also important to keep an eye on your competition during a recession. If they are lowering their prices, you may need to do the same to stay competitive. However, if they raise their prices, you can capitalise on the situation by holding firm on your own prices or even increasing them slightly.

The bottom line is that there is no one-size-fits-all approach to pricing during a recession. Instead, you need to evaluate each product and customer individually to make the best decisions for your business.

5. Respond to price changes quickly

To respond to price changes quickly, businesses need to be aware of what is happening in the marketplace. They need to monitor competitor pricing, understand customers' willingness to pay, and have a clear pricing strategy.

Businesses also need to be able to adapt their prices quickly. This means having the systems and processes to change prices quickly and efficiently. It also requires a team aligned on the pricing strategy and can execute it effectively.

Finally, businesses need to communicate price changes clearly and concisely to customers. This ensures that customers understand the rationale behind the changes and are not surprised or disappointed by them.

Using Pricing Software to stay ahead

Pricing software can be a key tool in helping a company weather a recession. A pricing platform like SYMSON can track a wide range of data factors both internal and external and make sure they are accounted for in the pricing process. It can also help you make these price changes quickly so you can stay ahead of the curve when it comes to economic trends.

‍