Top four ways to help improve profitability amid a challenging economic environment

Organizations around the globe are feeling the impact of the dynamic, constantly evolving economic environment on their business. With high inflation, strained supply chains, increased interest rates and bank closures, few industries are left unaffected these days. As companies struggle with disruptive forces, they’re looking for sustainable ways to prepare for economic uncertainty.

In response to inflationary costs, many companies have already taken action to move higher prices downstream and pass them on to customers. But rushing into pricing adjustments without refining customer knowledge can jeopardize sales, hurt margins and damage customer relationships. To make more informed decisions, organizations can consult their customer data to uncover opportunities to improve profitability—and help boost future revenue.

Before making changes to your pricing, it’s important to review your complex customer data for insights. Conduct due diligence to identify your high-value customers versus those with high acquisition costs. Once your high-value customers have been identified, you can begin to consider your options for making pricing adjustments and take action.

Four methods that leaders can use to respond to economic headwinds:

1. Product bundling & tiering: Adjust bundles and tiers to help enhance offerings for high-value customers while also providing compelling options for smaller or more budget-conscious buyers. This can include adding more features to popular bundles or integrating with third-party vendors.
2. Controlling discounts vs. contract value: Price is a dominant negotiating lever, but it’s not the only one. Stay firm on prices while offering meaningful concessions such as higher fulfillment priorities to customers during contract negotiations, especially for renewals.
   
3. Route-to-market priorities across channels: A recession often leads to increased customer churn. To head that off, you should consistently identify the need for new direct and indirect channels, and re-evaluate distributor and reseller agreements. Steer priorities based on customer lifetime value and customer acquisition cost for key customer segments. Tracking a customer health score can help in proactively managing churn.
4. Rebate management: Rebates are ideal for pricing in a downturn, since they’re only paid when earned. This approach introduces a level of risk-sharing with customers, helping companies navigate economic challenges.