Competitive pricing requires excellent, up-to-date positioning. How to maintain your prices even during economically turbulent times.
Because supply was also drastically reduced during the lockdown, prices have remained largely stable so far during the COVID-19 crisis. But now that customers and orders are returning, the discount war is heating up again. This is, of course, also fueled by the VAT reduction, which—through the price lever—is intended to boost sales across all industries for the rest of the year. So is price pressure actually increasing now? And if so, what should you do when customers become more willing to negotiate?
To answer this, it helps to first take a look at the current situation. The good news: In the skilled trades sector, sentiment has been improving month by month since the lockdown in March. In the ZDH’s fifth COVID-19 survey, 41 percent of companies already reported that their revenue in May 2020 was the same as in the same month of the previous year. For 17 percent, revenue was even higher. In addition, the vast majority of companies expect their order backlogs to stabilize to a large extent by the end of the year at the latest. The BIV has also updated its special COVID-19 survey and released an update in June. According to the survey, 39 percent of businesses report a decline in revenue. Thirty-seven percent reported a decline in new business, cancellations, and project postponements. By contrast, only a small proportion of stonemasons currently consider themselves to be in financial jeopardy: 81 percent, on the other hand, assess their financial situation as stable. Since July, the new VAT rates have applied to all sales that were and will be made between July 1 and December 31, 2020. The decisive factor for determining the date of service provision—including for partial services—is the date of acceptance or completion of the service. For material deliveries, the date on which shipping begins is decisive. If customers want to benefit from the lower tax rate until the end of the year but projects are not yet completed by then, partial services can be agreed upon; however, these must then be accepted and invoiced separately. The lower gross prices for customers are thus offset by increased expenses on the company’s side.
Companies should also exercise caution with net price reductions or discounts, even in crisis years. After all, price has an enormous impact on profit. And in times of economic uncertainty, the rule is simply: secure profits, defend sales, and keep an eye on costs. Ultimately, it is the customer who decides how to react to price increases or decreases—that is, whether they actually buy more or less based on a higher or lower price, or which price offer they prefer.
Read more about pricing in STEIN 9/20.
