It’s not too often that I mix politics with professional life, but it’s getting more and more difficult this election season. As we observe the unfolding of the two candidates’ plans, it is clear that the economy is part of both platforms, but their takes on fixing things are quite different. Regardless of the election outcome, one thing is for sure: there will be implications for pricing in 2025. Companies are running out of time to plan in Q3/Q4 2024 for inevitable changes ahead.
What can organizations start doing now to protect themselves and even benefit from either outcome?
Let’s start with the Republican platform. Donald Trump plans more of his last term’s actions – primarily protectionist tariffs. This time, he’s looking at a blanket tariff of 10% on all imports and a 60% tariff on Chinese imports. At the same time, he is looking to reduce corporate tax rates from 21% to 15% for companies manufacturing in the US. In pricing terminology, Donald Trump is looking to raise prices on imports and reduce prices on homemade goods. We suspect that in the short term, many US companies will likely see cost increases that must be recovered through pricing actions, as it takes a while for supply chain options to shift to domestic.
However, it’s a little different this round than his last term because the economy is in a different position now. We’ve experienced massive inflation in the last few years, so the starting point for company costs is much higher. Most of our clients are seeing weakened demand now, and trying to recover cost increases might seem daunting. What actions can companies take to prepare for this outcome?
1) Streamline your pricing process. This may be your last chance if you haven’t nailed the pricing process during the last few years. If your organization takes over a few weeks to implement a pricing action, you are at risk of a profit squeeze in 2025. We highly recommend using a Lean approach to process redesign to remove waste from your pricing process and ensure you are as agile as possible going into next year.
2) Know your supply chain options. It’s a great time to audit 80/20 of your vendor spending and build a concrete cost mitigation plan if the tariffs hit. If necessary, reach out to new alternate suppliers and start collecting proposals. This will allow you to pivot to other suppliers quickly and perhaps contain the impacts on your costs due to the tariffs.
3) Document your customers’ price and value positions. You likely have customers enjoying different levels of discounting and/or service. While the jump-off point for cost recovery discussions is higher this time than in 2018 due to inflation, some of your customers are likely starting from even higher points than others. Develop a scorecard for each customer so that you go into 2025 knowing which customers are likely already priced high relative to your value proposition and most likely to stop purchasing your products upon a price increase. This will allow you to mitigate the risk of further weakening your demand while maximizing your cost recovery results.
Some economists point to the Trump economic plan as likely only to provide a short-term boost while adding significant long-term National debt. If this position is accurate, we could look at continued inflationary pressures requiring repeated pricing actions in 2025 and beyond.
Pivoting to the Democratic platform, Kamala Harris has taken a contrasting position. Her plan includes implementing price controls on essential goods and increasing the corporate tax rates. Specifically, she
targets price controls on cost-of-living industries while raising corporate tax rates from 21% to 28%. In pricing terminology, Kamala Harris is looking to lower prices on critical goods and increase prices (or shrink profits) on everything else. We honestly believe this will be a difficult plan to implement and likely not get much traction in Congress due to the heavy corporate pushback it will likely generate. However, if successfully implemented, this plan, too, has massive pricing implications.
It is unclear to us how the platform intends to implement controlled prices. Still, we see this playing out in two ways: 1) price increases as a percent change will be limited, OR 2) actual ceiling prices will be implemented for specific products and services.
While the price controls target specific industries, we believe this policy's impact will likely spill across other industries. For example, food manufacturers might be targeted first – but in reaction to their squeezed profits, they are likely to put pressure on commodity and logistic providers to lower their costs, too. To recover, these commodity and logistic providers might try increasing prices in other noncontrolled markets or constraining supply to priced controlled segments.
In summary, several markets will have to decide to segment their pricing to keep profits whole or direct which customers first get access to their products and goods.
How can you prepare for this pricing environment?
1) Refine your pricing segmentation in preparation. It is time to review your segmentation to see if you have a truly structured pricing segmentation for different markets. Put critical oversight as to which of your end markets are most and least exposed to the risk of price control (directly exposed, indirectly exposed, and not exposed), and consider a marketing and promotions plan for your not-exposed segments. This will allow you to offset risk by pivoting to different markets.
2) Know your pricing chaos. If you have customers with different discount levels within segments and the implementation of the price control policies is limited to changes in price vs price ceilings, then it is time to get your ducks in a row and fix your highly discounted customers now – as on January 1. That means cleaning up old bad deals with urgency. This will put you in the position to maximize your potential profits next year in price-controlled segments.
3) Know your supply chain options. And just like under the Trump scenario, it’s a great time to audit 80/20 of your vendor spending and build a concrete cost mitigation plan. Corporations are unlikely to absorb the corporate tax hit and will likely pass it along.
Some economists suggest the Harris plan will result in constrained supply and lower corporate profits. We also think it might result in the consolidation of some industries, which implies a shift in pricing power from the customer back to the supplier longer term.
Regardless of which candidate wins the election, pricing will likely be part of the Q1 2025 conversation. You only have 3 ½ months to prepare your company for what’s guaranteed to be an interesting new year for the economy.
If you would like to learn more about how to prepare your specific company for 2025 price impacts, reach out to set up an appointment with one of our pricing experts.