build profitable tariff strategies

The impact of global trade policies is a key element in establishing corporate strategies. It is critical to recognize there are both short-term (weeks) and long-term (years) considerations in protecting profitability from tariff increases.

Protectionism versus free-trade policies have long been a part of political landscapes. I am not advocating the pros or cons of the utilization of tariffs. However, the incoming administration’s position on levying new tariffs will significantly impact revenue growth and potential earnings for many companies. In response to tariff increases, companies typically perform the following:

Long-Term Actions: proactively work on multi-faceted tariff mitigation strategies such as Williams-Sonoma:

Short-Term Actions: react using a “one size fits all” strategy of price increases across their customer base. However, this type of action does not provide sustainable performance in maintaining or growing margin contributions. With the exact profitability of each customer and product, more targeted strategies can be implemented.

Formulate tariff strategies using the exact profit performance of every customer and every product. By tailoring your strategies to your best, marginal and unprofitable customers, you minimize the impact of tariffs.

Customer Segmentation based on Profit contribution

Based on years of Competitive Insights client findings, customers can be grouped into the following three performance segments:

The very small number of customers that provide 95% of the profit (Critical)

The majority of customers that provide only 5% of the profit (Marginal)

The customers that are totally unprofitable (Unprofitable)

Tariff strategies can then be based on informed actions for each performance segment:

Critical customers some price increases may be needed, depending on the product mix purchased. The key is to ensure tariff related strategies prioritize keeping a strong and robust business relationship.

For Marginal customers it is imperative to understand what is driving their performance (sales volume, pricing, discounts, etc.). This root cause analysis can then be factored into tariff mitigation strategies for each customer.

Unprofitable customers are only going to be more unprofitable if nothing is done. They should be carefully examined to understand why they are not generating net profitable performance. Corrective actions need to also include the additional negative impact of new tariffs.

Formulating profitable tariff strategies must be based on a specific understanding of profit contributions by customer and product. The incoming administration will waste no time in implementing the proposed new tariffs.

Companies must act now to gain an accurate, specific and actionable understanding of each customer’s and product's performance to successfully protect and grow profits.

Competitive Insights has the ability, using Machine Learning and AI, to create accurate visibility to your current customer and product profitability. This visibility provides fact-based insights on how you can mitigate costs and identify the best options to protect margins and profitable performance.

We would love to hear your thoughts and comments. Please feel free to reach me directly at rsharpe@ci-advantage.com or visit our website at www.ci-advantage.com.