Pricing in A Pandemic Navigating the COVID 19 Crisis Summary 1. Read the article. This is the link for the article: https://www.mckinsey.com/business-funct

Pricing in A Pandemic Navigating the COVID 19 Crisis Summary 1. Read the article. This is the link for the article: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/pricing-in-a-pandemic-navigating-the-covid-19-crisis#2. Summarize the article in 2 paragraphs (minimum 200 words)3. Write your thoughts on the topic based on your own experience as a consumer in the market (minimum 100 words) Pricing in a pandemic: Navigating the
COVID-19 crisis
May 1, 2020 | Article
By Alex Abdelnour, Todd Babbitz, and Stephen Moss
early every public- and private-sector leader now facing the
prospect of human tragedy shares one top priority: the health and
safety of employees, customers, vendors, and their families. Once
they have put the necessary measures in place to protect people’s
lives, leaders must help protect livelihoods as the COVID-19
pandemic turns the global economy upside down.
The crisis is also exerting sudden and unprecedented pressures—
sometimes up, but more often down—on demand and pricing. In
many sectors, from air travel to durable goods, sharp drops in
demand, excess capacity, and heightened price sensitivity are
converging to drive down prices and destroy value. Many
customers are asking for discounts and contract renegotiations,
while some competitors are making aggressive pricing decisions. In
other sectors, from shipping and groceries to medical supplies,
demand has risen to levels no one could have anticipated in early
2020, putting upward pressure on prices.
In both scenarios, companies need to sustain value to both survive
the crisis and protect their employees’ livelihoods. Companies
must also be flexible and creative to support customers in this
tough time and work with them to weather the crisis together.
While it’s difficult to take a long-term view in the fog of a crisis
that seems to change every day, we expect that the companies
that emerge in the strongest positions will be those now taking a
“through-cycle” view of their relationships with customers and the
communities where they do business as part of an integrated
approach with marketing and sales. In the midst of the worst
health crisis in more than a century, they will be at their best,
addressing customers’ pain points with flexible payment terms,
unbundling, and one-time promotions. In short, they will drive
long-term value creation rather than seek short-term advantage.
In this brief memo, we suggest some “dos and don’ts” to help
leaders navigate unmapped territory during the pandemic. The
situation varies widely across industries and geographies, so we
offer an overview of pricing considerations here, not specific
advice for any one company.
Managing unprecedented variability in demand
Each company faces a unique array of challenges today; no single
approach or solution will suit them all. But it can be helpful to
consider pricing challenges in the following three main market
scenarios:
1. Companies experiencing a sharp and unprecedented drop in
demand
Sectors directly affected by social distancing and government
isolation guidelines, such as airlines, hotels, and food service, are
acutely impacted today. As they struggle with decreased demand,
they also have excess capacity and heightened price sensitivity.
Many of these companies are getting requests for steep discounts
and new terms as their competitors scramble to attract the few
remaining customers, at times with prices well below cost. But for
many companies in this kind of marketplace, we believe that
pricing is now beside the point. After health and safety measures
are in place, they should focus on maintaining cash reserves and
preserving key assets and talent to survive the crisis and fight
another day. Serving a few bargain-hunting customers at a loss is
rarely a route to long-term success.
2. Companies experiencing an explosive increase in demand
Some companies are now rushing to expand capacity, including
those that provide critical products and services, such as medical
supplies, shipping, and cleaning, and those whose products are
highly sought after by people confined to their homes, from toilet
paper and canned food to audio headsets, video conferencing, and
home entertainment. While this may seem like a rare opportunity
to generate outsized profits, perceptions of price gouging could
have serious reputational and even legal consequences. We urge
suppliers not to raise prices sharply on essential goods or services
or ignore contracts in order to take advantage of an emergency. In
fact, many states in the US are investigating hundreds of pricegouging complaints from consumers in the days that followed
state-of-emergency declarations. That said, operational concerns
may be even more important than pricing strategy, including
stabilizing the supply chain, keeping products on the shelves,
addressing customers’ urgent needs, and maintaining quality.
3. Companies with muted or lumpy demand
Some sectors, such as home improvement, landscaping, and
consumer electronics, are not directly affected by COVID-19 but
feel the impact of a general slowdown or moderate uptick as
people’s lives change at work and at home. Many of these
companies have opportunities to take near-term pricing actions
that preserve and build value—but they should avoid certain
pitfalls.
Despite this “day and night” variability across sectors, we believe
companies of all kinds should focus on a set of actions—and things
to avoid—as they contemplate pricing actions.
Five things to get right during the pandemic
1. Make sure that every pricing action is legal, ethical, and
community minded
A humanitarian crisis is not the moment to sharply raise prices on
essential goods or services or to ignore contracts. Certain types of
collaboration with competitors and other marketplace responses
may also be governed by antitrust or unfair-trade-practice laws.
The backlash could be severe, including reputational problems and
legal action in many jurisdictions. Any significant price increase
should genuinely reflect increased costs. Senior leaders should
consult with legal counsel before making any agreement with a
competitor, no matter how well intentioned.
2. Take a through-cycle view of customer relationships
Keep a long-term perspective. Reinforce trust by tracking key
customers’ evolving needs and standing by and defending them
during their toughest times. Help the sales team tailor offerings
and contracts to new situations and strengthen value-proposition
communication. Several technology companies with overseas
manufacturing, for example, surveyed customers and learned that
“supply-chain assurance” had become a top buying factor. Sales
teams used this insight to communicate the latest supply-chain
status, alleviating customer concerns, and to provide some
customers with supply guarantees after consulting the newly
established pricing war room. Providing incentives for loyalty can
also strengthen relationships while decreasing incentives to switch
to a competitor.
3. Strengthen value-focused messaging
Depending on the industry and customer segment, customer price
sensitivity may change markedly. The most effective suppliers will
show empathy and be able to explain how much value they
provide compared to the next-best alternatives. The sales force
may need updated training in negotiation, value selling, and
pricing. If demand is slack and in-person sales calls are not feasible,
this may be a good time to reinvest in skill building. Many
companies are finding that focused sales training, such as in
handling objections and communicating value propositions, can be
delivered effectively on a video-conferencing platform.
4. Create ‘flex’ in pricing
The outperformers in today’s environment will address customers’
short-term pain points without needlessly destroying long-term
value. For many companies, this will mean providing temporary
pricing or volume relief. Rather than lock in long-term, highly
discounted arrangements that might impact the business in the
recovery, they will explore ways to unbundle offerings, offer onetime promotions, flexible payment terms, credit for future
purchases, or other techniques that align the offer or pricing
architecture to near-term needs while providing flexibility for the
future. A number of enterprise software companies, for example,
have taken a page out of the consumer playbook and created
three-month promotional offers of virtually unlimited use of their
products for a minimal start-up fee. This helped the companies
each gain market share, preserve the long-term price points of
their value propositions, and assist customers in a critical time of
need, thus solving a business problem and addressing customer
cash-flow concerns.
5. Establish a commercial ‘value council’
A cross-functional team or war room can take a long-term view to
avoid panic reactions and develop clear guidelines and objectives
for the commercial team. The council can steward large and
strategic deals and oversee execution, speeding deal review for
impacted segments and maintaining discipline. They may look at
what is being given away for free, for example, and at contract
terms that are not being enforced. If the sales force decides not to
enforce terms or charge for an added service such as just-in-time
shipping, they should get “credit” for the forbearance (and ideally
something in return) from the customer. In addition, by regularly
interacting with sales teams across the business, this cross-
functional team can gather up-to-the-minute details about
changes in the marketplace—critical information in the fog of the
crisis.
What to avoid
Taking advantage of customers
Near-term shortages may make it feasible to raise prices sharply,
but this is unlikely to serve the company well over the long run.
For example, the Washington State attorney general recently
ordered five Washington businesses to stop selling protective
masks, hand sanitizer, and similar items at vastly inflated prices
through Amazon.com, or face lawsuits and fines of up to $2,000
per violation.
Assuming that every demand problem can be solved with pricing
In times of crisis, buyers may hold off on purchases because they
feel uncertain or their needs have shifted in meaningful ways. For
example, offering concert tickets for free right now will not fill bigcity arenas. In many sectors, deep price cuts may not raise
volume—and can unintentionally destroy value rather than build
it.
Relying on old price-sensitivity research
In a dynamic and evolving market, market price tests become
obsolete after just a few weeks or months. To understand
changing price points, companies should run new pricingsensitivity research and market price tests immediately,
particularly for higher-volume products and offerings.
Slashing list prices without considering other options
The manner in which price reductions are made can make a big
difference in a company’s ability to sustain and build value over
time. Rather than slash list prices, for example, companies may
want to consider temporary promotions, non-monetary discounts,
or discounts that help build volume.
Attacking competitors’ key accounts without preparing for a sharp
response
Before making any strong competitive moves, leaders should
understand their company’s position in the marketplace,
anticipate competitors’ likely reactions, and plan how to respond.
Price cuts may be easy to replicate, and they can change buyers’
long-term perceptions of brand value.
Next steps
The COVID-19 crisis and the accompanying global economic
downturn have spurred a continuum of demand responses across
and even within companies. Despite the alarm and uncertainty, we
believe organizations of all kinds can continue to rely on some best
practices and guideposts.
For example, they should seek opportunities that preserve and
sustain value, making each major decision in the coming months
with an eye on the longer-term implications for the company and
its employees, customers, communities, and suppliers. They can
look for win-win scenarios to support customers and employees at
a difficult time, remaining flexible and focused on preserving
lifelong relationships.
In this terrible and confusing moment, each of us has new
opportunities to show courage, compassion, and wisdom. And
while no one knows how long this crisis will last, leaders can begin
preparing now for the recovery, including using downtime to build
capabilities and improve pricing processes. An unwavering focus
on value can help organizations avoid extensive cost-cutting
exercises that, in the long run, could do more harm than good.
About the author(s)
Alex Abdelnour is a partner in McKinsey’s Atlanta office, Todd Babbitz is an expert in the
Chicago office, and Stephen Moss is a partner in the Denver office.

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