The COVID-19 pandemic has thoroughly disrupted the global economy that adapting has become an urgency nobody has the luxury to ignore. Exporters, in particular, have had to quickly come up with strategies to continue moving their products and sustain operations. These strategies include the adjustments in the prices, which may have been influenced by movements in the economy.
The World Bank has projected that most prices are set to drop in 2020 as demand for an extensive range of products drops significantly. However, some traders have seen this as an opportunity. Specifically, exporters in Singapore and Thailand saw increased trade activity mainly due to rising demand for food and medicine.
The peculiarities in how the global economy operates during a global public health crisis are creating pricing challenges especially for businesses that have transactions with overseas clients or distributors. It is difficult to simply raise prices when demand is high because many countries have laws mandating price freezes during times of calamities. At the same time, it may not be a good decision to drastically drop prices just to attract potential customers as consumer sentiments and demand nosedive.
So what should businesses do about pricing? McKinsey offers some useful insights in a piece about pricing in a pandemic. Here are the key points exporters and other businesses can integrate into their strategy building.
Supporting flexibility in pricing and product offerings
Businesses need to be mindful of various factors and adjust prices accordingly. One of the most important details to monitor is foreign exchange. The economic consequences of COVID-19 extend to foreign exchange and pricing, especially as e-commerce solutions need to localize their pricing. It also helps to anticipate the possible drastic forex movements to adjust costing and pricing to prevent arbitrage.
The pandemic has made foreign exchange more volatile. Forex traders may like it, but exporters and importers end up mostly suffering the adverse consequences. Flexible pricing during a pandemic entails—in the words of McKinsey—”temporary pricing and volume relief.” This means the possibility of unbundling products and services, providing one-time promotions, offering flexible payment terms, as well as accommodating credit for purchases.
Also worth noting is the selective pricing strategy mentioned in a Harvard Business Review paper on how to fight a price war. “One common—and classic—tactic is to change customers’ choices, or reframe the price war in the minds of customers,” the paper writes. Businesses can formulate complex pricing options such as volume discounts, multiple-part pricing, and time-of-use pricing. Doing these makes price evaluation less straightforward for customers, hence preventing a price war dichotomy of choosing between a cheaper or more expensive option.
Anchoring business messaging on value
Instead of engaging in price competitions, it is preferable to concentrate on brand and value messaging. Many customers will likely try to take advantage of the demand they create by switching to exporters that offer lower prices, but it is not sustainable to aggressively lower prices just to avoid getting outbid or out-marketed by competitors. In other words, the strategy is not to bring prices down or only allow very minimal reductions while communicating to customers why the brand or product is worth its price.
For this, it helps to make sales teams undergo seminars or training on improving their marketing strategies and relations with current and prospective customers. This coincidentally means having to embrace digital and online technologies as in-person sales and marketing campaigns have become difficult in the time of business lockdowns and compulsory physical distancing.
Also, McKinsey suggests the establishment of a cross-functional team that can serve as a “commercial value council.” This team will be mandated with the careful scrutiny of pricing decisions to avoid making panic reactions and to formulate unequivocal guidelines for the costing, sales, and marketing campaigns.
Emphasizing long-term relationships
This strategy is not directly about setting prices, but it is an essential course of action in keeping current customers and attracting new ones. This is a way of making customers ignore the price factor and give more weight on business relationships.
McKinsey says that “several technology companies with overseas manufacturing, for example, surveyed customers and learned that supply-chain assurance had become a top buying factor.” It would be unwise not to take advantage of this mindset, which is especially prevalent during economic difficulties. Exporters can focus on alleviating customer concerns and providing supply guarantees instead of negotiating for lower prices.
In the case of the Singaporean and Thai exporters that see increased demand as mentioned earlier, raising prices opportunistically may not be a good idea. While it is possible to generate more profits from new buyers that are willing to pay for higher prices, it is important to remember that the effects of the pandemic are not permanent. Abandoning long-term reliable customers to snatch temporary high gains does not make good business sense especially in the context of the Asian culture.
Ensuring legal, ethical, and community-minded pricing
Moreover, it is vital for every exporter to always take laws, regulations, as well as ethical and fair trade practices into account. Again, the pandemic does not always result in falling prices. Some businesses benefit from increased demand for their products, which opens up the possibility to raise prices as buyers are racing to book orders. This is when price gouging happens, something exporters should resist.
Abusive or oppressive price manipulation is one of the worst nightmares for any company during a pandemic or any disaster. It does not only result in bad PR. It can also land companies in legal troubles. Businesses that engage in pricing strategies that violate legal provisions and the orders of regulatory bodies can be suspended or shut down entirely in addition to getting fined for the offenses.
This does not mean that price increases during a pandemic should be ruled out totally. There are instances when they are justifiable. However, companies need to ensure that the justification is provable and defensible. Raising prices may mean more revenues, but if they also include litigation and reputational damage as part of the outcome, they are certainly not worth it.
The takeaway
A pandemic does not always mean price freezes or inevitable drops. Some businesses can also encounter opportunities to raise their prices in response to overwhelming demand and the rising prices of logistics and raw materials. Exporters can adjust prices, but they need to make sure that the action is ultimately advantageous to the business.
This advantage means that price decisions should also be justifiable, legal, ethical, and community-minded. Abusive price changes may mean greater profits, but they will most likely become unfavorable once reputational backlash and regulatory intervention come into play.
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