Pricing Strategies for Uncertain Times | HBR IdeaCast
Executive Summary
HBR's Curt Nickisch talks with pricing consultant Rafi Mohammed about pricing during uncertain times. Mohammed argues that a business has more options than a blanket increase or discount, and should first understand what its customers need. Originally released July 7, 2020 in the early COVID period, the linked YouTube version was uploaded in February 2023. These notes cover selected passages from the official transcript. Examples reflect the conditions and speaker's views at that time, not current vendor offers.
Key Takeaways
Pricing has more than two levers
Mohammed argues that treating price as simply up or down leaves useful choices unexplored. Different versions, terms and purchasing arrangements can serve different customers. A pricing strategy should consider the offer around the number as well as the number itself.
Do not make a blanket discount the default
He cautions against slashing prices in response to a downturn without examining the business. Some customers would have paid the previous price, while others need a different option. A broad discount may sacrifice revenue without solving the particular problem preventing a sale.
Serve different willingness to pay
His restaurant example distinguishes price-sensitive guests, people willing to return at the old price and people trading down from a more expensive place. He suggests price-based choices rather than one discount for everyone. The offer must still make sense to the customer and support the business's costs.
Explain a temporary change clearly
The discussion considers a restaurant surcharge when reduced capacity and higher costs make normal pricing difficult. Mohammed emphasises explaining why the change is necessary. Calling a change temporary should come with clear conditions, not an indefinite promise that customers cannot evaluate.
Ask about the strategy, not only the amount
He says a customer may want to buy while disliking the way the product is priced. A survey can reveal whether the problem is the level, the terms or the perceived value. Listening first helps avoid lowering a price that is not the actual obstacle.
Find the risk behind hesitation
Mohammed describes Hyundai asking customers during the financial crisis and learning that fear of job loss mattered beyond the vehicle price. He uses its assurance programme as an example of responding to a specific worry. This is a historical case, not a current return policy or a reason to copy its terms without checking the economics.
Compare value with the next best alternative
He says good pricing begins with how customers think and what makes the offer distinct. A premium needs a reason relative to the next best option. Understand the value the customer sees before assuming either that you must be cheapest or that uniqueness guarantees a higher price.
The Conversation Breakdown
Pricing has more than two levers
⏱ Untimed topicMohammed argues that treating price as simply up or down leaves useful choices unexplored. Different versions, terms and purchasing arrangements can serve different customers. A pricing strategy should consider the offer around the number as well as the number itself.
Do not make a blanket discount the default
⏱ Untimed topicHe cautions against slashing prices in response to a downturn without examining the business. Some customers would have paid the previous price, while others need a different option. A broad discount may sacrifice revenue without solving the particular problem preventing a sale.
Serve different willingness to pay
⏱ Untimed topicHis restaurant example distinguishes price-sensitive guests, people willing to return at the old price and people trading down from a more expensive place. He suggests price-based choices rather than one discount for everyone. The offer must still make sense to the customer and support the business's costs.
Explain a temporary change clearly
⏱ Untimed topicThe discussion considers a restaurant surcharge when reduced capacity and higher costs make normal pricing difficult. Mohammed emphasises explaining why the change is necessary. Calling a change temporary should come with clear conditions, not an indefinite promise that customers cannot evaluate.
Ask about the strategy, not only the amount
⏱ Untimed topicHe says a customer may want to buy while disliking the way the product is priced. A survey can reveal whether the problem is the level, the terms or the perceived value. Listening first helps avoid lowering a price that is not the actual obstacle.
Find the risk behind hesitation
⏱ Untimed topicMohammed describes Hyundai asking customers during the financial crisis and learning that fear of job loss mattered beyond the vehicle price. He uses its assurance programme as an example of responding to a specific worry. This is a historical case, not a current return policy or a reason to copy its terms without checking the economics.
Compare value with the next best alternative
⏱ Untimed topicHe says good pricing begins with how customers think and what makes the offer distinct. A premium needs a reason relative to the next best option. Understand the value the customer sees before assuming either that you must be cheapest or that uniqueness guarantees a higher price.
Core Frameworks & Ideas
Options instead of blanket discounts
Create offers for different needs or willingness to pay, while checking that each can be delivered profitably.
Barrier behind the price objection
Ask whether hesitation comes from price, purchasing terms, uncertainty or a different risk. Address the actual concern before changing the number.
Value against the next best alternative
Assess what the customer could choose instead and what distinct value your offer provides. Use that comparison to inform a price test.
Actionable Next Steps
- ✓Ask a few customers what they think of your pricing terms and value, not only whether the price is high.
- ✓Test a lower-commitment version or tier rather than discounting the same offer for everyone.
- ✓Write down the customer's next best alternative and the specific value your offer adds.
- ✓If a price change is temporary, state the conditions and the review point clearly.
Notable Quotes
“Pricing is really going to be key during these very challenging times for consumers.”
“Don't like, doesn't necessarily mean lower price.”
“the key to pricing is to think like your customers”
The One Thing to Remember
Pricing is really going to be key during these very challenging times for consumers.