Summary of "Rethink Your Pricing Strategies Amid Economic Uncertainty"

Podcast: HBR On Strategy
Host: Harvard Business Review
Episode Release Date: May 28, 2025

Introduction

In the episode titled "Rethink Your Pricing Strategies Amid Economic Uncertainty," Harvard Business Review delves into effective pricing strategies during times of crisis and economic instability. Rafi Mohammed, founder of Culture of Profit, engages in a comprehensive discussion with host Kurt Nickish, exploring innovative approaches to pricing beyond the conventional raise or lower tactics.

The Pitfalls of Traditional Pricing Strategies

Rafi Mohammed opens the conversation by addressing the common instinctive responses companies have during crises, such as slashing prices to retain customers or increasing them to leverage sudden demand spikes. He emphasizes that both approaches can be short-sighted and potentially detrimental in the long run.

Quote:
"During a crisis, companies often instinctively slash prices to keep customers or raise prices to capture sudden demand. But both of those reactions can be short-sighted and easily backfire."
— Rafi Mohammed (00:38)

Embracing Creativity in Pricing

Amy Bernstein highlights that pricing should be viewed as a multifaceted strategy, not just a simple point on the demand curve. She introduces the "Good, Better, Best" pricing model, exemplified by the airline industry's basic economy fares. This approach allows businesses to present tiered options, encouraging customers to upgrade while maintaining perceived value.

Quote:
"Price is far more than just a point on the demand curve; there's a lot of creativity associated with pricing that's really untapped."
— Amy Bernstein (02:48)

Discounting with Dignity

When addressing industries like movie theaters or traditional retail experiencing reduced demand, Bernstein advocates for "discounting with dignity." This involves offering discounts in ways that do not devalue the brand in the long term. Examples include requiring charitable donations for lower prices or imposing bulk purchase requirements.

Quote:
"It's really important to set a metric about when your price is going to go back up. ... These are ways that you can discount in a manner that doesn't devalue your product in the long run."
— Amy Bernstein (04:56)

Navigating New Cost Scenarios

For businesses like quick-service restaurants facing both decreased demand and increased operational costs, Bernstein suggests offering price-based options instead of blanket discounts. This could involve introducing new menu items that cater to price-sensitive customers while maintaining premium offerings for those less affected by economic downturns.

Quote:
"Offering choice and providing your customers price-based options is so important."
— Amy Bernstein (07:11)

Communicating Temporary Price Adjustments

In scenarios where businesses must increase prices due to constraints like reduced capacity, clear communication with customers is essential. Bernstein recommends labeling such price hikes as temporary surcharges, explaining the necessity to sustain operations during challenging times.

Quote:
"It's important to communicate it. So it's the COVID-19 surcharge, and be very clear with customers, this is why we're doing this."
— Amy Bernstein (08:27)

Capitalizing on "Revenge Buying"

Discussing the concept of "revenge buying," where businesses anticipate a surge in demand post-crisis, Bernstein advises against indiscriminate price increases. Instead, she recommends leveraging dynamic pricing strategies, as seen in the travel industry, to adjust prices based on fluctuating demand without alienating customers.

Quote:
"For instance, there's a famous ice cream place very close to me and I'm sure the moment they reopen there's going to be lines out the door... I would restrain myself from having higher prices."
— Amy Bernstein (09:58)

Encouraging Strategic Price Adjustments

Bernstein underscores the importance of not simply adhering to default pricing strategies during uncertain times. She encourages businesses to engage in introspection and be willing to adapt their pricing models in response to changing customer needs and economic conditions.

Quote:
"Customers are saying, we still want to do business with you. We just don't like the way that you price."
— Amy Bernstein (13:29)

Case Study: Hyundai's Responsive Pricing

A notable example discussed is Hyundai's response during the 2008 financial crisis. By listening to customer concerns about job security, Hyundai introduced a policy allowing customers to return cars without penalties if they lost their jobs. This customer-centric approach led to an 8% increase in sales despite a 20% overall drop in auto sales.

Quote:
"In 2009, Hyundai rolled out a pricing strategy that was an assurance strategy... and Hyundai's sales increased by 8%."
— Amy Bernstein (15:59)

Maximizing Profit Through Minimal Price Increases

Referencing a McKinsey study, Bernstein points out that even a 1% price increase can lead to an average 8.7% rise in operating profits, highlighting the substantial impact of strategic pricing adjustments.

Quote:
"A 1% increase in price if demand is held constant would on average increase operating profits by 8.7%."
— Amy Bernstein (16:09)

Knowing When to Adjust Prices

Bernstein advises that businesses should consider raising prices again when the economy shows signs of improvement and consumer confidence in spending regains strength. This can involve enhancing product offerings or reducing lower-priced items to shift towards higher-margin products.

Quote:
"When you see the economy improving and people becoming more confident about their spending... that's a good trigger."
— Amy Bernstein (17:34)

Preparing for a Gradual Recovery

Acknowledging the possibility of a prolonged and fluctuating recovery, Bernstein recommends stability in pricing strategies in the near term, postponing major adjustments until a clearer economic trajectory emerges.

Quote:
"The next year or two is one of caution for businesses... ride out the recovery and then reconsider your pricing strategy."
— Amy Bernstein (18:47)

Misconceptions About Pricing Resets

Bernstein identifies a common misconception: pricing should be directly tied to costs. Instead, effective pricing should consider customers' alternatives and align with the perceived value from the customer's perspective.

Quote:
"The biggest misconception of pricing is the notion of cost... think like your customers."
— Amy Bernstein (19:23)

Conclusion

The episode concludes with a reaffirmation of the importance of strategic, customer-centric pricing during economic uncertainty. By embracing creativity, maintaining dignity in discounts, and staying attuned to customer needs, businesses can navigate challenging times without compromising their long-term value.

Notable Quotes with Timestamps:

• "During a crisis, companies often instinctively slash prices to keep customers or raise prices to capture sudden demand. But both of those reactions can be short-sighted and easily backfire."
  — Rafi Mohammed (00:38)

• "Price is far more than just a point on the demand curve; there's a lot of creativity associated with pricing that's really untapped."
  — Amy Bernstein (02:48)

• "It's really important to set a metric about when your price is going to go back up. ... These are ways that you can discount in a manner that doesn't devalue your product in the long run."
  — Amy Bernstein (04:56)

• "Customers are saying, we still want to do business with you. We just don't like the way that you price."
  — Amy Bernstein (13:29)

• "A 1% increase in price if demand is held constant would on average increase operating profits by 8.7%."
  — Amy Bernstein (16:09)

This episode provides invaluable insights for businesses aiming to refine their pricing strategies amidst economic challenges. By prioritizing customer value and embracing innovative pricing models, companies can sustain and even enhance their market position during uncertain times.