Pricing teams that rely on Excel models and manual processes can be overwhelmed with the challenge of optimizing price as tariffs whipsaw cost. An Excel-based response can feel like “bringing a knife to a gun-fight.” Many companies have finite opportunities to change their price in any given year placing even greater weight on the right “weapon” in their pricing arsenal. Therefore, the biggest questions for pricing teams and senior leadership in B2B companies right now are how can we create an effective response swiftly, how can we ensure that the response is consistent with our broader pricing strategy, and how do we safeguard limited opportunities to change prices?
The OODA loop can serve as inspiration for pricing practitioners when developing a competitive pricing strategy response. Not familiar with the OODA loop? It was developed by strategist and U.S. Air Force Colonel John Boyd to be the foundation of rational thinking in extreme situations. OODA stands for Observe, Orient, Decide, and Act. Initially, Boyd developed the strategy for fighter pilots, but it can extend into any field that encounters situations of uncertainty and require quick yet accurate decisions. For instance, the uncertainty of pricing adjustments to counterbalance tariff impacts. Let’s briefly look at how it applies:
- Observe – First, get the complete picture with as much accuracy as possible. Pricing practitioners need to calculate the cost impact of tariff by-products, then calculate how it impacts their customers, and then make assumptions to calculate the big picture – what’ll the impact be on their targets? Don’t forget the complexity of different markets and external data like commodity futures.
- Orient – Next, connect with reality. Recognize barriers that might interfere with the other parts of the process. Pricing teams need to thoroughly examine the unique factors that impact price from customer to customer. For example, the plan may need to account for existing customers that have special price agreements with terms.
- Decide – Now comes the hard part, making the decision and choosing the options. Based on the analysis of the observe and orient steps, pricing teams and leadership need to review various price strategy response scenarios and their impact on revenue and margin to finalize their response strategy.
- Act – Now that the decision is made, it is time to implement the price changes. This stage is where the rubber hits the road, and the price strategy response gets calculated for individual account, product, and contract level changes in price for upload in the ERP.
Finally, monitor the impact and start the loop all over again. Now imagine if fighter pilots had to work with Excel and custom tools to go through this process while engaged in action. Thankfully, advanced models and modern avionics are designed to help fighter pilots make fast and accurate decisions in the same way modern pricing technologies are designed to help pricing and leadership.
Pricing technology can provide pricing practitioners and leadership the ability to observe the potential impact of costs, and its effects on revenue and margin. Pricing software automates this daunting task and provides accurate visibility so that users can focus their time on analysis and response as opposed to pulling together data and managing Excel files.
Pricing teams must go beyond just a mathematical calculation to achieve the most effective tariff price response. The response should be within the context of their pricing strategy. For example, pricing teams may need to treat a growth brand differently from a cash cow. Manually going through all accounts to analyze and prepare a response is not just enormously time-consuming but very suboptimal. Pricing software allows users to easily orient themselves by segment and analyze multiple potential scenarios for price adjustments.
Modern pricing software easily simulates the margin or revenue impact of any potential price changes so that pricing managers and leadership can decide based on expected impact as opposed to hoping for the results. Manipulating multiple spreadsheets to calculate potential price impact outcomes is not only frustrating but increases the risk of inaccuracy for every step.
There can be a great deal of work behind the implementation of price changes. Modern pricing software automates the act of updating price lists and agreements and publishing to ERP systems to enable companies to move quickly. So, when the time comes, changes can be made immediately and accurately.
The quickness and accuracy of pricing software enable pricing teams to easily consider competitive pricing strategy responses in times of looming tariffs. Now, pricing teams can plan alongside the government as they consider tariffs and prepare multiple attack plans before it could become policy.
So, don’t let your pricing strategy become a causality due to potential market bending changes. The difference between success and failure lies in the access to the right technology combined with a proven methodology. Pricing technology, much like the OODA loop model, allows pricing and leadership to be nimble, assess the ever-changing pricing landscape, and adapt quickly so that they will get through this potential pricing challenge and be prepared for the next.
Only with Vistaar’s leading pricing solution, SmartQuote, can you analyze the potential impact of tariffs and efficiently create a competitive price strategy response in just a few clicks. Find out more on SmartQuote here.
This article was authored by:
Kelly Capizzi, Associate Director, Marketing
Graduate from Millersville University of Pennsylvania