Pricing discipline in inflationary markets

Inflation is a poor teacher, but it is an honest one. It reveals, quickly, which businesses have pricing power and which have merely had stable input costs.

In our experience the constraint is rarely the customer. It is the internal belief that price increases will be rejected, held most firmly by the people closest to the customer and least exposed to the margin.

The remedy is unglamorous: know the cost to serve at customer level, segment accounts by value rather than volume, give commercial teams defensible reasons rather than percentages, and review annually rather than in a crisis.

Businesses that do this recover input cost inflation within a quarter or two. Businesses that do not spend years trying to cut their way back to the same margin, usually by removing the service quality that justified the price in the first place.

Pricing is the highest-return operational project available to most mid-market companies, and the one most often deferred.