A Tariff Crisis Is A Terrible Thing To Waste: Pricing And Profits

Forbes

24-04-2025

WASHINGTON, DC - MARCH 26: U.S. President Donald Trump displays a signed an executive order in the ... More Oval Office of the White House on March 26, 2025 in Washington, DC. President Trump announced 25% tariffs on all foreign-made cars. (Photo by)
Setting a pricing strategy is never easy. Amidst unpredictable tariffs, supply chain realignments, and fears of recession, it has become much more difficult. One risk is that a company will lose sales if prices are raised. Companies have more freedom to raise prices if their competitors are also doing this. But even so, it is possible that the whole industry will face falling sales because of changes in the pricing elasticity curve. This is something the toy industry fears. The Toy Association's CEO said President Trump's 145 percent tariffs on China will likely jeopardize the Christmas holiday.
Typically, executives think the only other choice is to absorb some of the added costs. This erodes margins.
But some companies have improved their margins despite the challenging environment through science-based pricing solutions and a more nuanced approach to pricing. I talked to an executive at a metals wholesale company who had improved their margin by 150 to 200 basis points by using advanced revenue management software to solve their pricing challenges. This company was using a solution from Revenue Analytics.
The pricing manager said this solution makes their company more resilient. They can better deal with these shocks through their 'ability to put guard rails in place' and ensure they are not selling at too low a price to nonstrategic customers.
I interviewed Jared Wiesel, the senior vice president of manufacturing & distribution at Revenue Analytics, to better understand their solution. The Revenue Analytics solution is designed for business-to-business selling situations where contracts are negotiated, not direct-to-consumer sales. In the case of increasing tariffs, this generally means convincing a sales rep that they need to go talk to a customer about an increase in pricing. 'Where we focus our AI is on segmenting the customer base.'
Many manufacturers take a simplistic cost-plus approach to pricing. 'This widget cost me 20 bucks. I will slap 10 bucks on top of our costs to generate margin. Mr. or Mrs. Sales Rep, go negotiate it.'
'Our analytics focus on segmenting customers based on signals relative to their willingness to pay. Then we set guard rails. Then we continually test and learn to find the sweet spot.' The solution has the data to do this analysis because there is a wide variation in what sales representatives charge customers. Prices, Mr. Wiesel asserted, can vary 100, 200, or 250% across deals.'
Customers can be statistically segmented based on whether they are national accounts or local deals, the industry sold to, geography, and order patterns. Once the segmentation is complete, a peer group analysis determines the range of prices paid by that group, focusing on identifying a sweet spot that increases margins while not significantly decreasing the likelihood of winning the deal. The data might show a 5% higher price paid on average by customers in a given region or industry. 'Then we can purposely segment and differentiate the pricing into optimal price corridors,' Mr. Wiesel explained.
This is an AI-based solution because that is what is necessary to continuously adjust the price ranges at scale. This would otherwise not be possible for a company with tens of thousands of stock-keeping units and hundreds of customers.
We are in a volatile tariff world. Mr. Wiesel pointed out that companies need to recognize that if they are buying a component that is just one among many going into a finished product, paying twice as much for that component does not mean that the total cost of the product needs to double. 'You have to walk it back from the bill of materials … to understand the impact at a granular level.'
He also points out that in determining a new price, both the science and pricing strategy have a role to play. There should be a focus on customers who get a price below the suggested price corridor. Sales reps should work aggressively to get these customers into the right price range.
Price increases should not be spread equally across all customers like peanut butter on a slice of bread. But this can be difficult. 'You can't really go back to your unprofitable customers and say, 'Sorry, you're going up way more than the tariff amount.'' You can't move those customers up as much as the math might suggest. Companies need to get their lowest-profit customers, products, and market segments pricing up, but they don't want to push so hard that they lose business.
Companies can't blindly follow the math. There is a game theory element to pricing. If a company increases its prices following a tariff increase, and a competitor waits a month to do the same, it could lose significant market share. A company must understand its role in the market. This can differ by industry. In some industries, the most prominent vendors raise prices, and their competitors are fast followers.
Many companies sell products across many categories. Some are doing great, some categories are softening. That has to be taken into account.
The third part of the pricing strategy involves messaging. There are a lot of different ways to execute a price increase. A company could just raise the price of its products. Or they could put a surcharge line on the bill showing the base price and how much it increased because of the tariff. A surcharge is easier to execute. But if the tariff goes down, customers will expect a discount, and the ability to move low-profit customers up in pricing is compromised.
Revenue Analytics forecasts what they believe an appropriate pricing corridor should be by SKU, customer, and other segments. But how can a pricing manager know that the forecast is accurate? In demand forecasting, for example, a statistical method called MAPE is used to measure the accuracy of the forecast. Can Revenue Analytics do something similar with their pricing recommendations?
'The ultimate objective is to forecast a Realized Pricing Potential,' Mr. Wiesel explained. For most of their customers, this equates to increased profits. The simulations might show the potential for a company to drive an incremental million dollars in profit in the coming quarter. Then their platform continually measures whether the profit is increasing transaction by transaction. 'The incremental value is being delivered relative to that benchmark.' That is ultimately how Revenue Analytics is judged.
But achieving the incremental profit depends upon the sales reps following the guidance. How many sales reps actually follow the recommendations? 'We call this 'coverage,' which is what percentage of the deals that are coming in within the guidance. 'In the performance platform, our most-used view is our sales rep scorecard. We are measuring every sales rep relative to their compliance and then the results of those deals,' Mr. Wiesel stated.
For the metals wholesaler interviewed, their coverage goal is that sales reps will follow the recommendations between 92 and 98% of the time. The pricing manager told me this range was their 'sweet spot.' If over 98% of the recommendations have been followed at the end of the quarter, they know they need to price higher. If sales reps follow the recommendations less than 92% of the time, they are pricing too aggressively.
Because B2B pricing is an 'imperfect science,' Revenue Analytics continuously measures what happened and adjusts pricing strategies. In contrast, pricing consultants do studies and only rarely adjust prices.
Mr. Wiesel's final thought was that crisis is a terrible thing to waste. Most companies do not have a robust approach to pricing. The tariff wars - and the drive for companies to protect sales and profits - present a perfect opportunity for companies to approach pricing more strategically.