What comes first - driving cost savings or actively managing pricing? Ideally, the two profit improvement techniques are executed in perfect harmony creating a synchronized growth engine resistant to market fluctuations. In reality, priorities are always competing and CFOs and their teams have to start somewhere.
Consider the chicken: The trusty old cost overhaul playbook presents less execution risk and what you see with your direct (and indirect) expense scenario modeling is more likely to be what you get. Of the two levers, it's the one you can more directly predict and control. So yes, it's a more obvious and less heroic tactic but perhaps a prerequisite to executing a competitive pricing strategy.
Consider the egg: New and innovative pricing initiatives have the most impact potential to improve an organization's profitability position in the long term. However, these projects can be tricky to execute given there's not a one size fits all approach to the wide range of business models. This risk is amplified by the assumptions inherent to any pricing play that takes a bet on how the capricious customer will respond to inflation and your brand strength. More upside with the egg, but less control of the outcome.
One of the reasons that companies often fail at implementing a new pricing strategy is that they don't fully understand their cost breakdown and when faced with cost disruptions, they can't calibrate price increases fast enough. The longer a business endures these increased cost levels without successfully passing through effectively, the harder it will be to recover margins to stay competitive.
So in today's inflationary environment, consider that establishing a continual calibration loop between cost and price using the right technology tools and process governance will be essential to adjust for growth in the elastic behavior we can expect in the months to come.
Control the chicken to nurture the egg.
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