How do you figure out how your competitors are pricing their products or services given the unexpected plunges in economic activity? Your customer tells you that he or she can obtain a better price from a competitor; true or bargaining tactic?
You need to understand the pricing structure of your competitors and your industry. Does your competitor sell via spot market, contract, or multi-year contracts? If contract, what clauses affect pricing? Does pricing differ by geography? For example, pricing of certain products is significantly higher in the US because of anti-dumping rulings by the US International Trade Commission.
Next look at history of behavior during previous downturns. While past actions do not guarantee future behavior, they do provide a roadmap. Ask yourself why the pattern would be or would not be different this time. Is management the same—and reacting in the same manner? Does your industry have new competitors that have changed the behavior of existing rivals?
Determine actual demand for your product—if possible. The downturn has been exacerbated by inventory destocking at every level supply chains. When the end user realizes that its sales are down by 20%, for example, the firm will reduce its purchases by more than 20% to use up existing inventory. This process really amplifies the drop in demand through the supply chain so raw material producers are really hit badly.
Go to your network of friendly analysts and customers and ask them what they perceive is happening (You do have a network set up, yes?). Of course, you’re already really busy since you’ve been asked to do more with less, but this issue is key to maximizing your employer’s revenue.
Work with your finance staff to analyze possible demand elasticity in this economy and present response options to your management.
While research on pricing is time-intensive during all parts of economic cycles, the value of what you do should be especially appreciated during these times as your work can make a significant difference in revenue and perhaps profits at your firm.