Turnaround Strategy: Survival Pricing

You may safely assume that if I am in your conference room, I’m not there to hand out the Jack Welch award for business excellence. I specialize in turnaround management. Specifically the commercial parts. This includes managing pricing. Call it survival pricing.

Most of the rest of the articles on the internet don’t do this topic justice. Here’s the real deal.

In a survival situation, every price has purpose. We have few moves, so we use them wisely.

Here’s why I gave you that price….

Survival Pricing – Generate Cash

If the banks cut you off and you’re running on cash in the till, different rules apply. I’m going to milk my existing inventory to optimize cash flow. Triage becomes key.

If the item is something I’m willing to sacrifice and never make again, I’ll dump it to raise cash. This likely means discontinuing the product. I’m never going to be able to get full price again. My survival pricing strategy is to let the market drop to move as much as I can on that item.

If we’re talking about existing inventory, this is fairly simple. Just dump the product on some discount buyer to raise cash. For example, dollar stores and exporters are great for this.

Things get more complicated if we’re talking about machine time, where I may want to run out my remaining inventory of raw materials. I’m going to look for ways to isolate this item in the market place, so it doesn’t affect my go-forward business. I need a dumping ground and we’re going to need to keep it open for a while.

Rebuild Healthy Products

On the other hand, I’m going to fight to protect my go-forward items. In fact, I may try to raise my prices for those products. I presumably have a business case for the buyer to pay more.

This is why having a strong finance executive is critical in a turnaround. Their job is to buy the commercial teams time to find safe harbor. Identify which products and markets can be saved and build momentum in that direction.

And I’m probably going to use it to play chicken with a couple of key accounts, to see if we can build enough margin into those items to fund the rest of the goat show. This is a high risk, high reward bet which will require our best salespeople to lead the charge for us…

Bleed Non-Core Customers

If you are a high cost to serve account and don’t appear to be relevant to our future. your price is going to go up.This is particular true if you’re annoying to deal with and don’t pay us on time. Especially true if you’re an entitled snot who attempts to deduct, short pay, and fine us.

My survival pricing strategy is to gently raise prices. If you’re a slow pay, I’m going to restrict your credit terms and shift your account to COD. Should you get aggressive, we move faster.

You’re going to fire me? Great! We no longer have the ability to tolerate your shenanigans.

Survival Pricing Summary

Hopefully this provides you with a better appreciation of the context and diversity of decisions involved in survival pricing. While it may look like we are running at marginal cost, a survival pricing strategy needs to be focused on shifting the turnaround into the correct mix of volume.

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