Pricing Your Product During the Post-Pandemic Recovery

Product pricing decisions during the post-pandemic recovery is crucial to achieving good financial results for 2021 and into 2022. The post-pandemic recovery is in full-swing and companies are trying to restock inventories following last year’s global recession, and demand is outpacing supply. Companies are unable to secure enough raw materials for their products because of the high demand. This is slowing normal production and causing lost sales or backorder sales. In some cases, companies have had to produce products based on the goods it has available rather than on customer orders.

Not only is there a shortage of much needed raw materials but the cost of raw materials to produce consumer goods is soaring. Some raw materials have had multiple cost increases over the last couple of months and producer price inflation is higher than it has been in more than 10 years. According to government data, China’s producer price index (PPI) in May 2021 was higher by close to double digits from last year. Add to this the increased cost of shipping and you have a major cost increase to your product.

The big question is whether the cost increases are temporary byproducts of the pandemic or if the global economy is changing and we are in for a new era of inflation. It is the position of the U.S. Federal Reserve that the current situation is temporary. Lael Brainard, a Federal Reserve governor, said, “Although continued vigilance is warranted, the inflation and employment data thus far appear to reflect a temporary misalignment of supply and demand that should fade over time as the demand surge normalizes, reopening is completed, and supply adapts to the post-pandemic new normal.”

Even if the cost increases are short term, your business needs to take some immediate steps to address the current cost increases. Below are some of the steps your business should take:

  • Research- Do some research on your competitors and the price increase policies they are implementing. This will help you come up with suggested price increases for your customers. You will need to be competitive in the consumer market with similar products and their retail market prices.
  • Customer Sales Contracts- Customer sales contracts may have a required notice period for price increases. You need to try to time the new pricing with the shipments to customers to minimize lost profit margins.
  • Backorder Sales- You will need to consider pricing strategies on backorder sales as they will reflect the old pricing.
  • Customer Letter- Once you have done your research, you need to communicate price increases to your customers promptly. It should address future and backorder sales pricing. You may consider adjusting prices downward should the current costs be reduced in the future.

Any company needing help with product pricing or other business matters can contact the Florida CFO Group for help.

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