When customers push back on price hikes

Oh, how cute. You thought the pricing challenges of recent years were going to get easier?

On April 10, the latest report on consumer pricing from the Bureau of Labor Statistics made plain the war in Iran’s impact on pricing: Consumer prices climbed a seasonally adjusted 0.9% last month, bringing the annual inflation rate to 3.3%.

The same day, new stats showed consumer sentiment dropped 10.7% in April, according to the University of Michigan’s closely watched survey, “with consumers expressing a substantial increase in concerns over high prices and weaker asset values.”

Add these recent consumer challenges to the affordability woes of recent years, and you get a tricky needle to thread: Consumers are likely reaching a limit on the price increases they can tolerate, but cost challenges for companies aren’t going away either.

“If you’re a consumer goods company, you’re really squeezed in this particular spot,” Matt Suggett, a partner in Simon-Kucher’s consumer goods and retail division, told CFO Brew. “On one hand, your costs are continuing to go up, and on the other hand, a large portion of your consumer base is really cost constrained.”

The rock-and-a-hard-place dynamic has inspired companies to invest in precision pricing tools—data-intensive software solutions that fine-tune pricing beyond the cost-plus approach. But implementing these tools effectively likely requires a broader mindset shift, experts caution.

Pressure and pushback. While grocery store aisles and gas stations get the attention when it comes to price increases, the crunch isn’t siloed: 57% of CFOs across industries said consumer price sensitivity has increased in their sector, and 84% have passed along some cost increases to customers in the last year, according to a recent survey from professional services firm Grant Thornton.

“There’s a lot of pressure and pushback,” Raul Vega, CEO of Auxis, an outsourcing and management consulting firm which recently merged with Grant Thornton, told us. “[It] depends on the industry and the business, but generally, for most businesses, you’re very hesitant to keep pushing pricing out there…because there is a lot of sensitivity.

“Sometimes you have no choice, but what it’s doing is reinforcing the need to be more efficient, be more productive, because you get very nervous about the ability to be competitive,” he added.

Hence, the precision pricing obsession: The same Grant Thornton survey found 16% of companies have fully implemented advanced pricing models, including those with AI, while “another 35% are rolling them out more broadly across the business.”

Right place, right tool. “As a general rule, I would encourage CFOs to evaluate the software and the tooling that’s available to them, [and] not just think about what is the right tool, but also what is the right organizational way to deploy this and make sure our teams are using it and getting the full value that we’ve paid for,” Suggett said.

CFOs looking to ensure ROI on these pricing tools should ensure there’s “a very clear and robust process around how that [tool] gets implemented from a training perspective, how it integrates into culture, how an individual user understands how they should be using it, how it relates to their job, and what the expectations are for how this drives improvements,” he said.

Effective rollout might also require taking an expansive look at the organization’s tech infrastructure, Vega said.

“For most companies out there, the big, dirty secret is they have very fragmented technology architectures,” he explained, noting that particularly for middle market companies, “that’s the huge challenge that is unspoken right now.”

“There’s a lot of plumbing that needs to be done to enable these concepts at scale,” he added.

“Take Uber, when they do the dynamic pricing. The only way that works is that they have really good data on how many people want rides, and what is the supply for rides in that area,” Vega said. “That’s not an easy thing to do. Most companies do not have the data to really drive that information.”

The little guys. For middle market companies in particular, building out a more comprehensive tech infrastructure might require getting comfortable with collaboration.

In Vega’s eyes, the smaller companies that have really thrived in a shifting tech landscape are the ones that didn’t shy away from “collaboration and building an ecosystem of partners that can bring in that specialized skill set.”

But getting the right tools to the right person can be just as beneficial, according to Suggett.

“Some of these tools are really leveling the playing field and giving smaller and mid-sized players the same insights that some of the leaders have had in the market.

“It almost is a reinforcing mechanism that everyone’s going to be able to do more granular pricing in the future, so just to keep up, you’re going to have to be doing it as well, because this is a technology that puts the same insights into everybody’s hands,” he said.