As companies scramble to respond to President Trump’s ever-changing tariff policies, some of the pressure has fallen directly on a tiny corner of the consulting world.
Known as pricing strategy, it uses tools like customer research, historical data, economic modeling and competitive analysis to recommend not only what price tag to put on items but how to structure prices to maximize revenue and profit.
Often a pricing strategist’s work involves simulating how different pricing strategies and prices could affect sales. But brand rules and psychology can also come into play. It’s part art, part science.
And lately, it’s been trickier.
Nobody knows how Trump’s tariff policies will change, how those tariffs will affect the overall economy or how consumers will adjust their spending as a result — all of which can be key metrics when determining pricing.
“It’s some of the highest levels of uncertainty that I’ve seen over my 25-year career,” Robert Haslehurst, who leads the global pricing practice at L.E.K. Consulting, told DealBook. Only the first weeks of Covid lockdowns and the start of the 2007-8 financial crisis came close.
Times like these can be a “golden opportunity,” said William Humsi, a partner at the consumer strategy firm Simon-Kucher who mostly works with B2B companies. A brand that imports less from countries with high tariffs than its competitors may be able to defend its market share by keeping prices lower, or use other players’ need to raise prices as cover for its own price increases, known as “taking price” in industry parlance.
Even after years of high inflation, there may be some customer tolerance for higher price tags. In a February survey of more than 2,000 U.S. consumers commissioned by Simon-Kucher, 71 percent of respondents said they saw tariffs as a tax on imported goods, suggesting that they expected price increases. (Whether customers planned to spend more because of tariffs, however, varied by category: Only 11 percent said they expected to spend less on gasoline, for example, while 42 percent said they expected to spend less on consumer electronics.)
But companies also fear moving on prices too quickly. When businesses change prices because of inflation, the expectation is that they move only in one direction: up.
That’s not necessarily the case with tariffs. If companies raise prices because of tariffs, it’s not clear that they’ll be able to maintain those increases if the tariffs are revoked.
Retailers play a role in setting prices for the products on their shelves, and they’re on the lookout for suppliers that use tariffs as an excuse to improve their margins. Some are asking for proof of tariff impact.
“There’s a lot of visibility here, so their customers, either the retailers or the consumers, are not going to tolerate holding prices high if tariffs come down,” Haslehurst said.
Many companies also want to avoid raising prices before competitors do.
“Most have not acted,” Haslehurst said. “They all set ambitious targets to act quickly, and then new news comes and they’ll have taken actions to reduce costs, taken actions to maybe stop importing, but aren’t ready to call the price out.”
Communicating price changes can also be difficult. Amazon angered the Trump administration this week when Punchbowl News reported that the company would add a line item at checkout showing the additional cost of tariffs. (Amazon said it had only considered the strategy for an experimental corner of its site that competes with Temu.) Most pricing consultants don’t recommend that strategy, and not only because it risks turning a brand into a political lightning rod.
For one, retail partners may not be able or willing to show a line item for the tariffs fee at the cash register. Two, such surcharges are inflexible and cover only one plane of uncertainty. If tariffs change, companies may still need to price in higher labor costs or a supply shock, for example.
It’s not clear what level of tariff-blaming could attract the administration’s attention. While companies like Stanley Black & Decker, Adidas and Procter & Gamble have said they are likely to raise prices because of tariffs, they’ve done so less pointedly. Denise Dahlhoff, the director of marketing and communications research at the Conference Board, said she recommended phrases like “input costs,” “sourcing costs” and “import costs.”
The potential scenarios are endless. “The Great Recession was really a demand problem; Covid in a lot of cases was largely a supply problem — this is both,” said Katherine Black, who as a partner in the consumer practice of Kearney works with retailers on pricing strategy. Managing pricing right now means “having to monitor all of that at the same time with incredibly frequent and unpredictable changes on both ends,” she said.
Some retailers are building data models that incorporate not only the direct impact of tariffs on each product in their store but also how its price compares with competitors. They’re also trying to factor in how potential changes in the economy, like inflation or a recession, could affect the product’s appeal to consumers. Brands are digging through their supply chains to understand how exposed their components are to tariffs and how that exposure compares with that of their competitors.
The possible solutions are endless, too. Pricing consultants say setting prices has been a more cross-functional task than usual, as companies simultaneously consider how to shift supply chains, inventory and products to manage the cost of tariffs.
Companies have three basic options: They can make less on every sale, raise the price or some combination of the two.
A brand whose portfolio includes only one product affected by tariffs may choose to spread out the pain by slightly increasing prices on all of its products. Or a retailer may keep a low price on a product that brings customers into the store but raise prices elsewhere. Brands may design new loyalty programs or discounts, or even introduce a lower-tiered product.
The problem now is less about writing a playbook than knowing which one to use and when. Many companies are planning “if this, then that” scenarios, but even the range of possible situations can change quickly.
Haslehurst began working with one client that is heavily dependent on China for sourcing as it considered how to respond to Trump’s initial 10 percent tariff on the country. The minimum tariff rate for China is now 145 percent.
In those early days, Haslehurst said, “none of our models anticipated the current situation.”
— Sarah Kessler
IN CASE YOU MISSED IT
There are warning signs for the economy. Employers added 177,000 jobs in April, better than expected, but the figures don’t reflect the full weight of President Trump’s tariffs since the hiring decisions happened a month earlier. That followed a messy first-quarter G.D.P. report that showed inventory stockpiling before the new levies took effect. The big question is what this means for the Federal Reserve, which has sent mixed signals about whether it would intervene to offset the effects of a trade war.
Trump proposed slashing federal spending for next year. The president proposed cutting $163 billion from the federal budget, a move that would reconfigure the role of government, as it would effectively dissolve climate, education, health and housing programs. His proposed $1.7 trillion budget is more or less a wish list that includes a 13 percent increase in military spending to $1.01 trillion. Up next: Congress will spend the next several months debating various budget proposals.
More companies pulled their financial forecasts. General Motors, Snap and UPS were among those that scrapped their guidance, citing the uncertainty that Trump’s trade fight had unleashed. Businesses did more than reveal that their crystal balls had gotten unacceptably cloudy: They expect shocks to their supply chains and warned that they would have to cut costs.
Paramount and Trump began mediation over his “60 Minutes” lawsuit. Lawyers for both sides started talks on Wednesday, exploring a potential settlement of the president’s $20 billion suit against CBS News. Paramount, which owns CBS, has outlined financial terms — reportedly in the $15 million to $20 million range — but Trump’s team is expected to ask for much more. Shari Redstone, Paramount’s controlling shareholder, favors a settlement. Paramount is also seeking government approval for its merger with the Hollywood studio Skydance.
‘We have no plans to change our supply chain’
We asked DealBook readers how tariffs had affected their companies. Today, we’re featuring a response from Peter Schwartz, the owner of Aremco Products, a privately held business in Rockland Country, N.Y., that develops and produces ultrahigh-temperature adhesives and coatings and distributes ceramic parts for the semiconductor, aircraft, aerospace, automotive and power generation industries. The business generates about $8 million in annual sales and employs 21 people.
He writes:
We import a few raw materials for our manufactured products such as yttrium oxide, which is derived from a rare earth metal. We also import technical ceramic parts mainly produced by two exceptional suppliers from China. One immediate effect of the tariff is that we had a shipment of raw materials en route when the 145 percent tariff was imposed — so our cost has just increased dramatically.
We also have 15 to 20 transactions pending with Chinese suppliers of technical ceramic parts, and our margins will be trimmed significantly — by as much as 35 to 45 percent.
We are now factoring tariffs into any new price quotations. For example, a part we ordered in January, that cost $1.57 per unit, in April costs $2.97 because of the new tariffs. Even though we anticipated paying the January rate, we have to pay the higher April rate since it’s dependent on when the part comes in. Even with that price increase, we are trimming our own margins. Our customers will definitely have to pay higher prices going forward, but it is too early to tell whether they will accept higher prices or postpone or cancel projects.
We did receive a letter recently from a major customer stating they would not accept any price increases attributable to tariffs.
We’re also dealing with inbound shipping problems. This has to do with the end of the de minimis exemption. Many of the parts we import qualify for this exemption, but not anymore. Now, companies like FedEx are required to collect a tariff on any shipment valued at more than $1, so we think the end of de minimis is causing deliveries to be delayed. The bottom line is we’re having problems getting shipments now.
On the export side of our business, we have a major China customer that purchased approximately $60,000 worth of our goods in March, and the shipment was prepared to leave just as China said it would apply reciprocal tariffs after President Trump announced his tariffs of 145 percent on “Liberation Day.” As a result, our customer asked us to store the product, hoping that the issue will be resolved shortly. I wrote to them and said, “We’re glad to hold it, but I strongly doubt that it will be resolved shortly.”
Before this, our China business had been growing significantly. About 40 percent of our sales come from exports. I would not be surprised if our China sales now drop by 50 to 75 percent. And the hit may not be reversible because our customers in China will likely search for domestic suppliers.
The tariffs have already baked in a recession. I expect our total sales to decrease by 15 to 20 percent if a recession hits. We experienced an 18 percent decline in 2008, so we have some basis for our prediction. And this is all being brought on by an unforced error, namely the 145 percent tariffs on China and around the globe. We find that our China suppliers are extremely competent and very responsive, and we enjoy working with them. We have no plans to change our supply chain.
It’s a bit like an earthquake in the Indian Ocean. It’s not felt thousands of miles away, but the tsunami will eventually hit us, and that’s what this feels like. The tsunami is inflation and unemployment.
DEALBOOK WANTS TO HEAR FROM YOU
We’d like to know how the tariffs are affecting your business. Have you changed suppliers? Negotiated lower prices? Paused investments or hiring? Made plans to move manufacturing to the U.S.? Or have the tariffs helped your business? Please let us know what you’re doing.
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Sarah Kessler is an editor for the DealBook newsletter and writes features on business and how workplaces are changing.
The post They Help Companies Set Prices. Tariffs Are Making It Trickier. appeared first on New York Times.
