The Tariff Playbook: Practical Strategies for Businesses to Stay Ahead

As global trade and political concerns continue to evolve, the impact of import tariffs on businesses has become an increasingly significant concern. Whether an organization imports raw materials, components, or finished goods, the rising costs associated with tariffs can affect profitability, pricing structures, and market competitiveness. In this article, we’ll explore one option for businesses to strategically prepare for the potential impact of tariffs through a well-thought-out tariff pricing strategy.??

1. Understand the Full Scope of Potential Tariff Increases?

Before implementing any pricing strategy, it's essential to understand the full scope of potential tariff increases. Import tariffs can be imposed by governments for a variety of reasons—trade disputes, national security concerns, or political tensions. The first step is to assess which of your imported goods might be subject to higher tariffs.?

This requires closely monitoring:?

• Tariff classifications: Understand how your products are classified under the Harmonized System (HS) codes, which is used globally to determine tariff rates.?

• Regulatory changes: Stay updated on trade policies, tariff changes, and government regulations that could impact your supply chain.?

• Tariff escalation: Some tariffs may increase over time, so it's important to anticipate future increases, not just the immediate impact.?

• Supply-chain visibility: While it’s easy to track direct suppliers, the lack of supply chain visibility on higher tiers can lead to unexpected shortages and cost increases.?

Organizations which do not have direct immediate tariff impact may still see price increases in their market and geography. These organizations need to build a price strategy to understand how to respond to new market conditions – either holding at the same levels to grow market share or matching competition pricing to gain margins. ?

2. Calculate the Potential Impact on Your Cost Structure?

Once you’ve identified the affected products, the next step is calculating the potential impact of the tariff increases on your overall cost structure. This can be done by:?

• Quantifying tariff costs: For each product affected, calculate the additional cost of the tariff (e.g., a 25% tariff on a $100 item would add $25 in cost).?

• Assessing volume: If your organization imports goods in large volumes, the additional cost per unit may add up quickly. Make sure to assess both small and large-volume imports.?

• Accounting for other costs: Don’t forget to account for indirect costs that may rise due to tariffs, such as higher shipping fees, longer delivery times, insurance, or changes in supplier pricing. E.g. a 25% increase in cost leads to higher insurance costs, with longer lead times as trade may be rerouted through third countries resulting in higher costs due to lack of spare capacity.??

By calculating these costs, especially second-order cost increases, you’ll be in a better position to make informed decisions about how to adjust pricing or manage other aspects of your business.?

3. Leverage Technology for Real-Time Insights?

Implementing technology tools like pricing optimization platforms, supply chain management software or financial forecasting tools can help businesses track and respond to tariff changes in real time. These technologies can help:?

• Determining and accounting for an increased cost base: Software can enable easy and accurate determination of cost increases at customer and SKU levels.??

• Automate price adjustments: Set up algorithms to automatically adjust prices based on tariff fluctuations or changes in supply chain costs.?

• Monitor market conditions: Use data analytics to track the broader market and global trade trends, helping you anticipate tariff-related impacts before they hit.?

• Improve forecasting: Better financial modeling and forecasting tools can allow for proactive planning and decision-making rather than reactive adjustments.?

Import tariffs are a reality in today’s interconnected world, but that doesn’t mean your business has to be blindsided by them. By implementing a coherent tariff pricing strategy with coherent management software, and staying informed about the global trade environment, organizations can effectively manage the rising costs of imports. Transparent communication with customers, coupled with value-added offerings and careful pricing adjustments, will help maintain customer loyalty while ensuring business profitability.?

By staying proactive, agile, and prepared, businesses can successfully navigate the complexities of tariffs and continue to thrive in an ever-changing global marketplace.?

4. Review and Adjust Your Pricing Model?

Once you’ve calculated the potential impact on your costs, the next step is to evaluate and adjust your pricing model. Here’s how:?

A. Price Increases?

Organizations need to leverage this legitimate and public reason for this price increase through proper communication and passing on the increased cost to the end-user. Organizations need to adopt a more responsive price increment strategy compared to yearly price increases, something we have covered in detail before - LINK?

B. Communicate with Transparency?

Transparency is crucial when raising prices. Customers understand that external factors—like tariffs—are beyond your control, and they may be more accepting of price increases if you explain the reasons behind the hike. Here are some tips:?

• Be clear about the reasons: Communicate that tariffs and supply chain disruptions are driving the need for a price adjustment.?

• Offer advance notice: Give customers plenty of notice before implementing price increases so they can prepare for the change.?

• Provide context: Explain how you’ve absorbed costs up until now and how the tariff increases have made it necessary to adjust prices.?

C. Value-Added Offerings?

If your prices must increase significantly, consider offering additional value to justify the increase. This could include:?

• Bundling products: Offer discounts for bundled products or services that offset the higher prices of individual items.?

• Enhanced services: Provide additional services like expedited shipping, extended warranties, or improved customer support to add value to the customer experience.?

• Loyalty programs: Implement loyalty rewards to maintain customer retention even in the face of price hikes.?

5. Optimize Your Supply Chain to Minimize Tariff Impact?

Beyond just adjusting your pricing, optimizing your supply chain is another critical strategy to mitigate the impact of tariffs:?

• Diversify suppliers: Explore alternative suppliers from countries with fewer or no tariffs. This can help you reduce reliance on markets with high tariff rates.?

• Negotiate better terms: Engage in negotiations with existing suppliers to secure better terms or adjust pricing in response to tariff changes.?

• Reshore or nearshore production: For businesses heavily reliant on imports, moving some production closer to your market or sourcing from domestic suppliers could reduce or eliminate tariff exposure altogether.?

• Incorporate tariffs into long-term strategy: When evaluating new suppliers or entering new markets, consider the impact of potential tariffs as part of your overall business strategy.?

6. Monitor and Adjust Regularly?

Tariffs are not static, and global trade landscapes can shift quickly. What may seem like a one-time cost increase can evolve into an ongoing trend. Therefore, it’s important to regularly monitor:?

• Tariff policy changes: Keep a close eye on changes in tariff rates and trade agreements that could affect your business.?

• Competitor pricing strategies: Watch how your competitors are adjusting their pricing. It’s important to remain competitive while still maintaining profitability.?

• Customer reactions: If customers begin to push back on price increases, you may need to reassess your strategy, offering promotions or discounts where possible to mitigate the impact.?

The impact of tariffs will be disruptive and will require a proper strategy to manage volatility. It is highly likely, like the previous rounds of tariffs, it will lead to counter tariffs and a reorganization of supply chains. Organization needs to be able to understand these impacts and build data-driven pricing strategies to address these. Hence, our next post will be about how software is being used to address pricing volatility and accelerate responsiveness of organizations.??