As global markets face increasing volatility and tariff uncertainty, businesses must adapt their pricing strategies to stay competitive and protect margins. In this exclusive webinar, pricing expert and PROS Chief Visionary Officer Craig Zawada, will explore how businesses can navigate tariff increases with confidence.
Get expert insights on:
- Adapting your pricing strategy to shifting tariffs
- Minimizing risk while maximizing profitability
- Staying ahead in an increasingly volatile market
Host
![]() |
Craig Zawada Chief Visionary Officer – PROS Craig Zawada is the Chief Visionary Officer at PROS. A widely published author, Zawada is perhaps best well known for co-authoring The Price Advantage, which has been recognized as one of the most pragmatic books available on pricing strategy. Prior to joining PROS, he was a partner and leader in the Marketing and Sales Practice at McKinsey & Company. |
Related Resources
- Blog – Navigating Tariff Increases: How to Future-Proof Your Pricing Strategy
- Blog – Navigating the Escalating Trade War: Advanced Pricing Strategies
- Blog – 6 Quick Pricing Wins to Manage Tariffs
- Blog – Pricing in an Uncertain World: How Walmart’s Caution Signals a Shift for B2B Spending and Strategies
Full Transcript
Alrighty. We are at the hour mark, so we’re gonna go ahead and dive in. Good morning, good afternoon, and good evening to everyone on the line. Welcome to today’s webinar. The topic today is tariffs.
…
Namely, how how do we navigate in the current climate as it relates to tariffs, and, really, what do they mean in terms of affecting your pricing strategy going forward?
My name is Cody Nagy. I’m a senior manager of customer success here at PROS, and I will be your host for today. I am very excited to be talking through this with you all today.
Just given the timing, yesterday was a liberation day. And I know for for many of us, we’ve been thinking about tariffs. It’s been top of mind for the past couple months. Right?
Just talking with all the customers I engage with. This has been all consuming, in in the pricing community, rightly so. And we’re all just trying to make heads or tails of of what this means for us, how to adjust as professionals that that have business commitments here in this country, and just how to approach this. Right?
So that said, I’d like to introduce our subject matter expert, for today who’s gonna help be our guide on this tariff discussion. I’d like to introduce, Craig Zawada. He’s our chief visionary officer here at PROS, having been with PROS for fourteen years.
Not only that, but he’s a published author having coauthored The Price Advantage, which is widely regarded as, one of the more pragmatic books out there as it relates to informing your pricing strategy.
I will say I I picked up one of these books when I was first starting my pricing journey a while back, and I can highly recommend it. Definitely worth the read out there.
Before pros, Craig was a partner and a coleader of the North American pricing practice at McKinsey.
So, again, brings a wealth of knowledge and experience to the table today, and we’re very excited to have him with us as we need to talk through this. Before I hand it over to Craig, I do just wanna say go ahead and put all your questions in the q and a functions in the top right hand, side of your screen there. We’re gonna hold all questions until the end. We will save some time where Craig will talk through those and answer those at that point.
So please be entering those as we’re going through this.
So just wanna call it out in advance. With that, again, Craig, thank you very much for joining us today. I’m gonna hand it over to you.
Great. Thanks, Cody. Cody, can you hear me okay?
I sure can.
Okay. Great. Well, good day, everyone, and thank you for joining the the discussion.
It’s definitely a a hot topic as Cody mentioned. We’re gonna cover a few things, risks and opportunities from tariffs.
We’ll talk about the volatility trifecta that will make a lot more sense coming forward.
What are some actions companies can take, and then we’re going to talk about dynamic pricing systems and their role in this environment of tariffs.
So let’s start with something, clear, easy, a topic we can all agree on, the geopolitics of tariffs.
That’s a joke. Obviously, there’s a lot of emotion about what’s been announced, the the lead up to it. There’s lots of perspectives.
But where this ends up ultimately has a real impact on pricing, and so we’re gonna start there and and talk about that.
If you look at the so the prevailing theories about what is the ultimate objective of the tariff policy, on the one side, people think, well, this is all an effort to renegade renegotiate more favorable trade security and supply agreements.
And, it’s really you know, there’s stuff put out there, but things are gonna be negotiated. And if you look at some of the initial reactions, you know, pullbacks, negotiations that happened, you know, there’s definitely validity to that theory.
The other side of the ledger is, no. This is not a renegotiation ploy. This is something that president Trump has thought about for forty years.
It’s about the middle class. It’s about reshoring select industries. It’s more of a bolder long term vision.
Now if you’re if you took macroeconomics, and I think a lot of people when he was beginning to talk about this would say, well, this is crazy. You know, it’s it’s established that, fair trade, free trade is good from comparative advantage perspective.
On the other hand, there’s there’s, economists that think not not very many that actually this has been bad for the middle class, and it’s important to reassure these industries.
Bob Lighthizer, I’ll quote him, further in, fascinating interview, ninety minutes recently, talked about the case for the right side of this equation.
So we’re not gonna say what’s right or wrong. People have varying opinions.
We did a survey, prior to this webinar.
About fifty nine percent think that this is about renegotiating the favorable supply and, and security agreements. Forty one percent think this is more of a permanent reshoring balancing of US trade.
And if you look at the comments, yesterday, these are some quotes from president Trump yesterday.
They’re on both sides. Right? So, I I think it’s fair to say as we look at the impact of pricing, the administration is shooting for the right hand of the equation. But if things get very painful from an economic, from a stock market standpoint, they’re probably gonna fall back to the left part of this equation. So they’re leaving it open that they’re gonna pull back some of these tariffs, but they’re shooting for the right hand of the equation. I think it’s fairly clear that that’s where they’re they would ultimately like to do. So what are the impacts on on pricing?
So regardless of which part of the this balance is going to be had, short term pricing volatility is going to be high on both sides of the equation.
Medium to long term price volatility, You know, if this becomes a renegotiation and there’s stability that’s happened, maybe in the medium and long term, the volatility is gonna be low. If they’re shooting and they wanna continue on this objective of balancing and reshoring select industries, there’s probably gonna be fairly high long term, medium to high longer term price volatility.
And the reason for that is they’re gonna be watching trade imbalances and adjusting these tariffs over time.
As far as the the survey, we surveyed people, again, prior to the webinar.
Out of one to ten, about eight point seven was the average score of short term volatility, but people do think that that’s gonna pull back a little bit, longer term. Probably those that believe this is more of a short term renegotiation.
So the implication for pricing is pricers need to be prepared to respond to this increasingly dynamic market.
And in this webinar, we’re gonna walk through and sort of, peel the onion on this volatility that we would expect in pricing.
Well, let’s start with, you know, why should we be concerned about this?
If you take the average economics of twenty four hundred companies, public companies in the stock market, the question is, what if you have a one percent deterioration in fixed cost, volume, variable cost, or price? What is the impact on operating profits? And so this takes, you know, mathematically, obviously, price has the biggest impact, Variable cost of eight percent. Volume of you lose lose one percent of volume minus three percent. But what are the potential tariff impacts? Well, tariff impacts have the potential to impact all of these factors.
Take, for example, on variable costs. If you your variable costs go up by ten percent and you’d nothing happens to volume or price, you’re talking about an eighty percent reduction in operating profit.
So this is the challenge of tariffs from a pricing standpoint is, profits are highly sensitive to to price, to variable cost, and, and somewhat to a lesser degree, volumes.
So that’s why, as pricers, we have an important role here.
So let’s break down, tariffs and the impact on in the pricing world. One of the things we wrote about in the price advantage is we said, well, pricing means different things to different people. Right? There’s sort of the economist level of pricing, which it’s about, supply and demand and cost dynamics.
That’s one part of of price management. The second is customer value. So how am I positioned relative to competitors?
What’s my overall price position in the market? Am I premium discount, etcetera?
And then the third level of pricing is the transaction level of pricing, and that is what are all the terms and conditions, discounts that lead to my price at an individual customer level? That’s the transaction level of pricing.
And then the underlying all of that is your pricing infrastructure is how do you manage pricing across pricing across these three levels. And the idea that we wrote about in the price advantage is you have to think about pricing at these different levels, and there’s different strategies and tactics and tools that you use along these levels.
Now tariffs impact all these levels. So if you think about it from a market strategy level, it can fundamentally shift supply demand, cost dynamics, as well as the leadership followership behavior. So market signals, price signals that are happening in the market.
So a lot of impact at the market strategy level.
At the customer value level, it can change your price position versus competitive alternatives.
So you may be advantaged or disadvantaged, versus alternatives.
And at the transaction level, it’s about potentially changing your customer and transaction economics, given changes in variable cost, discounts, rebates that you may be offering.
And at the pricing infrastructure level, I talked about some of the dynamics and volatility that’s expected.
There’s a need for nimble price management and execution to respond to these market shifts.
So what are some of the market shifts that are happening, and how does that impact pricing?
Now all of these need to be considered together, but I’m gonna break them down individually. So first thing to understand as far as volatility is the cost.
Where will tariffs have a a cost impact?
Second, from a competitive standpoint, how will the potentially differential tariff impact change my competitive position?
How will competitors respond?
And then thirdly, how will customer behavior change in lieu of these price changes? So are they gonna change their behavior?
So let’s break down each one of these.
And by the way, most companies will face at least one.
Some will face all of them, and all of them impact pricing strategy.
So when we talk about cost volatility, the question is where do you play? And there’s really two dimensions to this. There’s the input tariff impact. So, if I’m producing an electrical component and I’m buying steel or aluminum, out of the country, that’s gonna impact my input cost. And then the second is, is the export tariff impact. While I’m producing it here, now there’s a tariff when I’m selling outside of country.
So if you think about it, if you’re, you know, low, low, it’s domestic insider. If you have a high tariff impact, you’re you’re buying, from internationally, but you’re selling domestically, versus I’m producing locally but exporting and then a combination of HiHi as a global player.
So we did a survey prior to the to the webinar, as I mentioned, and, surprise, surprise, not many domestic insiders, not very concerned about this. Seventy percent seventeen percent are import dependent domestic, so they’re buying but then internationally but selling locally.
Twenty one percent are producing more locally but then selling externally. And then sixty two percent are are the global players. So the first thing to understand is, like, how is this impacting your cost as well as your selling price, externally?
So what are some potential strategies? Again, this is just looking at cost independently.
So if you’re import dependent domestic, you have to decide what’s your cost pass through.
You have to balance margins with market share, potentially targeting your high value customers. So you’re really focused on this cost pass through. How is that how do I make sure I don’t have margin erosion, domestically?
Export. So you’re you’re producing locally. You’re exporting, adjusting prices to stay competitive abroad, and I’ll talk more about the competitive impact.
Potentially shifting your focus to domestic markets and then testing your elasticity.
Maybe this is something that you have an adjusted price internationally. You know, maybe you have more of a brand premium that you, you know, didn’t think you had.
And then from a a global player, really, this is a lot of potential volatility to manage here. You have to optimize markets, potentially look at shifts between markets, raising your prices where possible, figuring out how these tariffs are gonna ripple and maintain your your margins in your business. So, again, if you think about just cost volatility independently, here are some of the things and the strategies that are different depending upon where you play.
An important point in all of this is that customers expect change. So, obviously, everyone knows what’s happening. There’s a lot of volatility. And this is a a very important point is that, there is perhaps more of a window to make changes to your pricing than there has been before.
And I’ll give you an example of this. During the pandemic, there was a, company that sold chemicals internationally. This is a European based company, Customer of PROS. And during the pandemic, there was they had to pass along one point five billion of cost changes that were happening.
And they said, you know what? We use this as an opportunity. There are some customers that were less profitable historically.
There are products that they wanted to adjust. So they not just passed along their cost. They use that to rebalance and and make changes for things that they wanted to make changes for, for a long time. So very important point is now is the time to take advantage of this customer expectation for change to make some of those adjustments that maybe have been more difficult in the past.
So this is, cost volatility.
The second dimension is competitive volatility and where do you play.
The two dimensions of this is what is the tariff impact on you, whether it’s high or low, and what is the impact on competitors?
So if you’ve if you have low impact on you, low on your competitors, you have competitive stability.
If you have a high impact on you and less on competitors, you could be disadvantaged.
If impact on competitors are high but low on you, you could be in advantage position, and then it could be equally disruptive to all of you.
Again, we did the survey.
It looks like twenty nine percent believe they’re gonna be at a disadvantage, higher impact on you versus competitors, seven percent advantaged, and then sixty four percent equally disruptive. So this is gonna kinda raise the watermark for for everyone.
Let’s talk about the competitive dynamics here. I mentioned the market strategy or or the, customer value aspect of pricing.
There’s a a framework that we use as the competitive value map. So if you look on the y axis, you have perceived price and the x axis, customer perceived benefits.
If you look at a market and these are dots on this chart are individual offerings in this market.
If you’re in a market where they line up where low price, low benefits, high price, high benefits, and, they’re on this line, we call it the value equivalence line. The idea of a value equivalence line is it’s clear. You get what you pay for, and it’s it’s a stable market.
So it’s stable market shares, in this in this offering. That doesn’t mean that everyone has the same share, but at least there’s stability in the market.
So then the question is, well, what if someone moves moves off of the value equivalence line? Well, if you’re competitor b and you’re off and and you raise your price relative to everyone else for the same level of benefits, well, you’re at value disadvantage and you will likely lose share in that scenario.
Alternatively, if you’re a competitor c and you lower price relative to the benefits, so you’re at the same price as competitor b, why would you buy competitors b’s product? You’re gonna buy competitor c’s product, and they’re gonna gain share. So you’re in a value advantage position.
The third element is a shifting of the VEL.
So if all of the competitors raise their price commensurately, the shares may change, but they’re still gonna be stable. You’re just shifting the VEL upwards.
So you you can imagine where I’m getting with this. When we think about tariffs, all of these potential scenarios could happen. So if, if you’re a competitive stability, well, there may not not be a lot of shifting that’s happening in the market.
If there’s a higher impact on you and you’re sort of pressured to raise price but no one else does, you’re potentially gonna lose share.
Alternatively, if you’re in an advantage position, you could gain share or this is equally disruptive. And, again, this is the the orange mark show where people think they’re going to land in terms of impact on their business.
So you can see here there’s a lot of potential dynamic shifts that are gonna gonna happen in the market. So what are the what are the potential strategies?
So if you’re advantaged, you wanna avoid a price war. You wanna raise price to maintain value equilibrium.
I had a conversation with one of our customers a couple of days ago in agriculture industry, and, they’re actually they believe they’re gonna be at an advantage for some of their products because some are coming in a competitor to China. And the question is, well, do we wanna use this to just grab share? Or if we do that, are we going to create a price war? Should we use this to grow margins in that in that business? So it’s important to understand where you are relative to competitors and not necessarily, try to gain share aggressively. You’re just gonna, kind of destroy value in the industry. This might be an opportunity to maintain that value equilibrium.
If you’re disadvantaged, you may have to do targeted price reductions, especially if they’re highly elastic, if there’s room in the margin.
You wanna hold where it’s inelastic. Again, this is an opportunity to maybe test some of those price ceilings and and premiums that, that are there, using rebates, other methods of increasing benefits, and we have some resources on the pros dot com talking about some of the details, six different tactics.
My colleague Josh Bardell just released that, talking about different tactics to increase the benefits, use rebates to, maybe, lessen the impact of of tariffs.
If it’s equally disruptive, which is, sixty plus percent of the respondents to to our survey, it it’s really important to understand, okay, there may not be, there’s a shifting of the VEL, but how are buyers gonna change? So their prices are going to go up overall.
How are they going to shift between products? So are they going to go to a lesser quality product, lesser benefits, but maybe more budget friendly?
So the strategies here is really understanding the shift of behavior. You may you may have to raise price on some of those lower products. There’s gonna be more demand for those. Helping customers manage the budget impact of alternative products. So really understanding how this shift of behavior that’s gonna change, across across the customers.
And, again, customer expectations for change are gonna be high. So it’s really important to understand where you start and what is your strategy in these different quadrants.
The third aspect of volatility that I talked about is demand volatility.
And we go into a lot of detail in the price advantage book around dynamic value management.
But the important point here is that when you’re looking at the value map, there’s a customer distribution.
I mentioned that the shares will be stable but not necessarily equal across this value map.
You might have a lower percent in high price, high benefits.
You might have a distribution of customers across this. And so when you think of especially those when we’re shifting the VEL, the question is, first of all, what is the distribution of customers?
How will they change, when competitors move on this map? Or how does it change when there’s a shift of the VEL?
Because the shares may be stable, but you again, customers may shift to different types of products, in this more dynamic market.
If you looked at the the survey that we did, we asked, you know, how will customers change their buying behavior due to changes resulting from tariffs.
Forty two percent believe they’ll buy less.
Twenty five percent switch to competitive products. Nineteen percent switch to alternative products offered by you. Ten percent, no changes. And there’s a lucky four percent, that think they’ll, they’ll buy more. Probably those that believe they’ll be in an advantage position relative to competitors.
So the important point here is there are going to be especially if this dynamic shifting of the VEL, raising prices overall, really understanding how our customer’s gonna move across the products, across competitors, and being able to anticipate that, measure that, and then respond to that.
So what are some of the the tariff pricing responses that we’ve talked about?
First of all, is to understand at a customer and product level, what is the cost impact of tariffs?
Mention the the quadrant are is it your input cost? Is it going to be the cost in your, when you’re selling internationally?
You need to understand how is this gonna impact, and and these things may change over the coming weeks and months.
Second, where you have flexibility to adjust prices and adjust them quickly. So customers expect pricing changes.
Cody’s gonna go into some detail about, sometimes you may have agreements in your prices that you’ve negotiated that, understanding where you have the flexibility to change versus not is extremely important.
Use the umbrella volatility to fix mispriced customers and products.
So this is a window of opportunity. Again, I mentioned that chemical company of using this to make some changes that you’ve wanted to do for years, and because of this customer expectation of of change.
Understand your competitive position and relative tariff exposure.
So are you in an advantaged, disadvantaged position?
What is the relative impact on you versus the competitors and being able to to respond to that?
Don’t forget the leadership followership dynamics. This is something at the market strategy level. There are gonna be announcements, surcharges.
Some companies will decide to make it very explicit on a surcharge for tariffs. Others will hide it in. Understanding the competitive dynamics and what’s the leadership followership dynamics in the industry is important. And I would say again, we talk about this in the book. You’re clear and consistent.
Customer communication is key for what you do publicly because everyone’s gonna be watching what everyone else is doing.
Dynamic value management, quantifying how customers will change their buying behavior.
And we’ll talk more about how some of the technology helps anticipate forecast where these changes are happening.
So I talked about the the tariff induced volatility trifecta, broke out cost competitive customer demand individually, but we really need to think of all of these things together, and that’s the challenge that we all have. We can’t just go one at a time. I kinda broke those up to to talk about some of the theory and the strategies, but we really need to be managing all three of these factors when we think about pricing strategy.
So how is pricing professionals do we respond to tariffs and subsequent volatility?
One of the quotes I like, this was, Bob Lighthizer. He was, served under the Reagan administration, first trade first Trump administration.
And, when he was asked by, someone, hey. How do we how do we respond to to tariffs? He said, I say the smarter businessmen and businesswomen are going to figure it out. Well, gee, thanks.
So we’ll have to figure it out. Our position is that advanced pricing technology can play a key role, in dealing with this volatility.
And why is that? It’s because traditional pricing systems, it’s difficult to respond when there’s a lot of volatility. So often, we don’t have timely analytics to gauge our exposure.
It can take weeks to develop and execute price changes.
Static segmentation models aren’t forward looking, and then there’s sort of manual optimization that happens. So things can if if they’re stable, you could do a lot of planning. You could do it in Excel spreadsheet, but not when there is dynamic as an environment that we’ve talked about.
What are some of the benefits of dynamic pricing systems? These are some quotes from, pros customers when they’ve talked on, earnings calls about how dynamic pricing systems allow them to respond to volatility in the market. So I won’t go through all of them, but, you could see and and not many companies like to talk about, you know, their pricing, pricing systems, but these are cases where high volatility, CEOs, CFOs have talked about, hey. This has really helped us deal with a volatile environment. Because if you can’t respond quickly, like I talked about, the impact of a one percent change could have a huge impact on profitability.
Traditional price segmentation really struggles, in in a dynamic environment. So a lot of companies that do price optimization, those sort of segment their customers, their regions, and and do, price targeting, price differences in in the market.
But often, there’s no ability to learn across segments. You can miss trends that are happening in the market. Often, you’ll you’ll have certain price targets that you’re going after. But when things change, it’s you you know, you’re sort of trying to optimize past versus the future.
And and often you get into data sparsity issues when you get down to regional.
You know, you’re trying to subsegment your prices.
You get into data sparsity issues.
If you compare that to neural network, and this is, innovation that we’ve done over the the last number of years, you have an input layer then you have a deep learning layer that you don’t have to look at segments. You’re you’re learning from every transaction that’s happening in the market. And there’s a lot of advantages to the new technology of of neural network. First of all, it can learn across all transactions.
Second, and more most relevant to the tariff discussion, it can model trends and seasonality.
So there’s a forecasting element to the new optimization technology of neural networks, which you’re you’re not trying to optimize the past. You’re trying to forecast what’s going to happen.
You can use easily use additional data elements. So for example, if you’re you can put in there whether you’re an advantaged or disadvantaged across segments, it’s gonna learn from that. You can add elements to the optimization very easily. And these are all crucial characteristics in in volatile environments like a tariff environment.
So what we would say is that traditional and and older technology around price optimization is less relevant, makes it more difficult to optimize your price and manage these three vectors of volatility that’s happening. And so neural network allows this ability to look forward of what’s happening in the market.
So what’s the role of dynamic pricing systems?
It’s, first of all and and Cody’s gonna walk through some use cases here. Understanding your margin exposure, know where you have pricing flexibility, where you could actually change prices, being able to execute mass price changes, and then lastly, optimizing using a neural network. So Cody’s gonna walk through some use cases about how the pricing technology can help on each of these dimensions.
Alright. Thank you very much, Craig. I think a lot of those kind of the different frameworks, how to think about advantage, disadvantage, all that’s very compelling. The neural network element, again, handling kind of, the dynamic element of the market for you, again, very compelling.
So as Craig mentioned, we wanna bring this to life for you. Right? So we wanna, in just a second, take a look at at how we would actually go through those steps that Craig just outlaid within a dynamic pricing system, namely the pros platform. But before doing that, I do wanna set the stage with you all just so we have some context as we move into this live demo.
So I want you to imagine that you are a, pricing director at a mid market industrial distributor. Right? So might not be too hard for some of you guys on the call because that might be your your very same role. Right?
That said, we wanna simplify things for the sake of the demo. So we’re gonna simplify the business. We’re gonna see you kind of have two main transaction types here. You have transactional and then you have the agreement side of your business that Craig mentioned as well.
So on the transactional side, again, this is gonna be the line share of your revenue. It’s gonna be non customer specific pricing, you know, spot deals, someone comes in off the street, they just buy some products, that’s it. Right? You have a lot of flexibility for this portion of your portion of your business to, change your pricing on the fly.
Right? So that’s kind of the first tranche. The second tranche is is would be the agreements portion of your business. Right?
This is a subset. Let’s call it ten to fifteen percent of your revenue. This is gonna be customer specific pricing.
And as Craig mentioned, you’re gonna have limited flexibility here depending on the terms that you set up as it relates to your agreements. Right? So, again, in the case of simplicity here, we’re gonna assume three different types of agreements. So one is your prices are completely locked.
So you have a contract with that customer for a set of products for a specific term with set prices. Right? You have some agreements where you have some flexibility to change prices, but up to a certain point, so you have a price cap there. Right?
And then the third situation, think more handshake type agreements. I have flexibility to adjust my prices. I can go renegotiate these, giving thirty, sixty day heads up to my customers. K?
So that’s the stage I wanna set, before we actually move in the demo here. So having done so, I’m gonna go ahead and share the application.
Quick confirmation. Craig, are you able to see the UI now?
Yep.
I did, Cody. Alright.
So, we’re gonna start off within again, we’re within the Pro’s platform, but, specifically, we’re in the Pro smart price management application. Right? You can see that here at the top of the screen.
And, again, the first thing I wanna do if we’re thinking through kind of the workflow that Craig talked about is I wanna start to quantify my exposure.
Right? So these tariffs are coming down the pipe. They’re affecting my costs.
What do I stand to lose, and what’s that carve look like, into my bottom line based off these tariffs? I wanna be able to model that out and understand what that looks like. So to do so, I’m gonna start in our insights module, which again is a subset of price management here. And all it is, think of it as analytics.
Right? So takes all the data that you’re loading into pros, transactions, customers, products. It helps visualize it to understand past price performance and then inform your price setting going forward. Right?
So a very, very powerful tool, in your toolbox there. And to do our exposure analysis, I’m gonna go to our price waterfall. I think as pricing practitioners, we all know and love a price waterfall. Again, a very, very powerful chart here, as we go to set prices.
Just familiarizing self with the UI. Again, at the top, you’ll see our context bar. So this is where we’re able to filter to different subsets of the business, and then the data will reflect that below waterfall.
I wanna highlight that we are filtered to our electrical components product category.
The reason being in this kind of scenario we painted here, I know a hundred percent of this product category is coming from China. So I know or I can infer I’m gonna have significant exposure in terms of tariffs.
And then I can also quantify what those tariffs are gonna be. So we’ll look into electrical components. Again, I think we’re familiar with the waterfall. We have our list price on the left.
We kind of flow through it with different elements, getting to our net price, and then we have kind of our variable cost, our fixed cost. We get down here to our pocket margin, which we can see is about fifteen percent in this case. So what I’m gonna do just for starters, I kinda wanna quantify that in dollars and cents because that’s how I wanna surmise my exposure. So I’m gonna change this to total.
And I see I have, seven point eight million in margin dollars today for my electrical components. So that’s my starting point. Right? So next what I wanna do is, again, I want to start to quantify my exposure.
So what I mean by that is with the increased costs due to tariffs, how does that impact my bottom line? So I’m gonna use what what we, call the what if scenario feature. This is a very, very cool feature. I know a lot of customers I work with, leverage this frequently, are big fans of it.
I am as well. What this will allow me to do is I can take any element in my waterfall, and I can change it, percent change, override, or particular value, and the system will automatically adjust, flow that through the waterfall, and tell me what my bottom line impact is gonna be. Right?
All doing that dynamically. So what I’m gonna do here is I’m gonna find my variable cost, which is where I have my tariffs. I’m gonna click that.
I’m gonna click it, and I’m gonna go ahead and just do a hundred percent change here. I don’t know if you guys caught it on the previous screen. It’s currently ten percent tariff. We’re just gonna double it. We’re gonna get it at twenty percent. I’m gonna apply this.
I’m gonna minimize it just so we can see a little bit better. And we can really quickly see the system has created two scenarios for me. I have my baseline, which is a darker color, and then I have my scenario, which is that lighter color, which is again taking information I I gave it during for in the kind of a what if screen there. Right?
Now it it changes my tariffs, flows me down. I have my, my projected margin and then my my current margin. I could do math there, but I’m gonna let the system do the math for me. I hit the differential tab at the bottom.
I see that’s five point three million dollars or almost five point four million dollars in margin dollar exposure. So, again, if I do nothing, I can use a system per to project when those costs change, how much that’s gonna hit my bottom line, and that’s a pretty sizable number. K?
So, again, considering our scenario, we do have those two transaction types. So as a diligent pricing director, I do wanna understand what my exposure looks like relative to each of those transaction types. So to do so, and if we’ll remember kind of the key distinction there is customer specific versus non customer specific pricing. So I’m gonna go ahead and apply a filter to my context bar for if it’s customer specific or not. I’m gonna start with my non customer specific pricing. So, again, that’s our transactional portion of the business, which is the lion’s share. I’m just gonna reset that.
Okay. So it’s adjusted. I’m looking at my transactional portion of the business. I’m gonna go back in my what if scenario.
I’m gonna recycle what I did earlier. Variable cost, tariffs, hundred percent change.
Apply.
Differential.
Four point one million dollars. Right? So pretty quick and easy. Sizable. I expected that again. I know the lion’s share of my my revenue is attributed to the transactional side of the business. Now the nice thing here is where I collect, I have a lot of ability to quickly and easily change my prices and get those to market.
So I’m not as worried about this as I might be on the agreement side of the business. Now, again, agreements, that’s where I have maybe less visibility to understand exactly, the amount of kind of price change I can push to market considering these tariffs to protect the bottom line. So what I’m gonna do here, I’m just gonna quantify that. I’m gonna switch over to my customer specific pricing. Right?
And then I’m just gonna reset this guy, go back in, variable costs, tariffs, one hundred percent change, apply it, look at my differential.
So one point three million dollars. Right? So I’ve now quantified at aggregate and for the different transaction types of my business what my exposure looks like. That’s great.
That’s a good start. Right? I’m looking at this almost one point three million dollars, and now that’s gonna keep me up at night because, again, I know that’s tied to agreements. And I know I might have my work cut out for me to go ahead and see how I can adjust prices to reduce that exposure, but I have to consider my agreement terms.
Again, those three types of agreements, fixed, price capped, or flexible or variable. Right? So, how how would I go about moving to that next step in the workflow? Well, we can do all that on the PROS platform.
So what I’ll use is work called workflow navigation. I’ll just click on any of the kind of the bars here in my waterfall, and I get some options to continue my pricing workflow here. Right?
And I’m gonna go to my customer specific price list where I can actually start to take action, model out different price scenarios to reduce that exposure. And then from here, I can actually push those prices to market. K? So, again, familiarizing yourselves with the screen here.
We do have our customer specific price list call at the top. We have our context bar. Again, we’re looking at the electrical components product category. And then you see four different tabs.
So we have our baseline tab, which is kind of our starting point. This is where I will lock in the pricing strategy that I decide is best to to submit those prices. I have competitive strategy, cost plus price optimization. So I have three different strategies, and and then, essentially, the way to look at these are different different scenarios that I can run and model different price changes, and those will get reflected and summarized in this blue ribbon below.
Right? So this represents a point of comparison across all my scenarios. And, again, focusing on revenue, margin percent, margin dollars, and volume, and then we see the difference played out here on the right hand side. Okay?
And then below, we have our respective, specific price items either reflective of an agreement with a customer and a product and a price, just to simplify it. Right?
I should also call out here that we’ve already loaded our updated cost in the system.
So that’s reflected here inclusive of tariffs, and we can see that today, you know, kind of status quo, status pair of is. If I do nothing, my margin loss is gonna be over half a million dollars.
Okay? So, again, we’ve kind of quantified it. Actuals is loaded in the system. Again, this is forecasting forward status quo. Right?
I should also note that, the system is aware of our agreement terms. Right? So because we have our agreements listed here, we can enter these as business rules. So, again, the system knows if it’s a hard contract, if there’s a price cap, or it’s flexible. Again, that’s been accounted for, which is gonna help me as I start to run through these scenarios as a pricing leader.
Okay? So now that we’ve said all that, the first place I wanna start is essentially just kind of a brute force approach. How much of these tariffs could I just pass through if I wanna go ahead and just pass try and pass through as much as I possibly can considering my agreement terms? Right?
So to do that, I’m gonna go ahead and select all my price items here. I’m gonna go ahead and hit adjust. Now I have a field in here called tariff pass through percent, and I can tell the system how much I want to pass through. Right?
And I’m gonna say I want one hundred percent.
I’m gonna click adjust. Now keep in mind, again, the system knows my agreement terms. So I told it I want a hundred percent. Now it’s gonna tell me how much it actually could pass through considering those terms, considering those, fixed prices, considering the price caps.
Right? So we can see that now the system has thought about it. It’s come back, and the difference has adjusted. Right?
So we so we see that we’ve shrunk from over half up the five hundred and sixty, thousand dollars down to about a hundred thousand dollars. Right? So it’s about eighty percent. I’ve I’ve reduced my exposure by about eighty percent, which is great.
Right? That’s a good start.
If I look at my price items in the bottom, I can see that I’ve told it to do a hundred percent tariff pass through. What I’ve actually netted out considering my terms is, I’m just eyeballing these, just, you know, under fifty percent in actuality.
Right? And then if I go over all the way to the right, it’ll tell me why I hit, or why I was limited in that. And in this case, these are all price caps based on my specific agreements. Again, these are just all some some examples for you guys here.
Okay? So this is a good start. Again, I wanna keep this in the back of my mind. So if I just try and increase everything, maximize it, this is where I land.
Okay? Now I wanna look at additional strategies here. So I’m gonna go over my competitor strategy.
This is something that’s also been set up in the system in advance. Right? This is something that a lot of customers leverage on an ongoing basis. And in this situation, we’re just pulling in, the the three price points from our our three primary competitors for a a given product.
Right? We’re getting those from the market. We’re feeding in the system. And my my strategy is very simple.
Again, you can tailor it as well, but in this situation, I just wanna take the weighted average of those three price price points, middle of the road, and that’s kind of what I’ve configured here through my my price method. So in order to see what that looks like, again, I have my baseline up here. I’m gonna select all these again. I’m gonna assign a method, which is gonna be my competitive strategy.
I’m gonna tell the system to recalculate it right off the the bat here.
So right now, again, it’s looking at all those prices. It’s taking the weighted average. It’s assigning a new price.
I could see that my blue ribbon has updated again here. Right? So I haven’t really shrunk the gap as much as I wanted to.
Right?
One way to look at this is, again, this is pulling the prices from the market from my competitors.
Maybe they’re they’re slow to adjust prices. Maybe they just haven’t done it yet. A way to think about this, going back to kind of the matrix that Craig talked about earlier, maybe there’s opportunity in the market there.
Maybe there’s opportunity to gain market share, but we also have to consider the the value line. Right?
This is this is just an interesting data point as I go through and and try and weigh my decisions to ultimately decide what price strategy I want to go to market with, considering the tariff situation. Okay?
So I’ve I’ve ran this. This is good. Again, parked down the back of my mind. The last strategy I wanna go ahead and run here is the one that, I’m most excited about.
It’s leveraging the the price optimization, those neural networks that Craig talked about. Right? So let’s let’s use a dynamic neural network optimization to go ahead and tell me what the right price should be for this particular customer under these set, set of selling conditions. Right?
So, again, it’s the right price for the right customer for the right product at the right time. All that stuff is being considered. The model’s looking at the market dynamics, and then it’s, again, providing a price based off the customer’s willingness to pay and the win rate probability.
Right? So where my kind of full tear pass through was a sledgehammer, this is very much a surgical approach. Right?
And, again, imagine I’m using this typically ad hoc as I have a new agreement come in. As I’m negotiating it, I’ll look at the optimization. But, again, considering the climate with tariffs, I’m curious to run a scenario where I just take all of these, right, and I essentially price everything at Target, right, what does it what does that do for my exposure?
Right? Now keep in mind, again, the target isn’t necessarily maxing anything out to a price cap. Right? The price caps are there.
The terms are there as business rules, but the target could be incrementally increasing these prices, again, based off the willingness to pay the customer, and this is crucial. It’s also helping to protect the customer experience and prevent price shock. Right? Again, it’s considering these things.
Now, as we can see here, it’s adjusted. I’ve gone from again, I got eighty percent of the way there with my kind of my brute force tariff pass through. I’m now ninety percent of the way there with my surgical approach. K?
So I still have some margin that that I’m kind of conceding here. I’m more some more percent. I’m under two percent.
In terms of, let’s see here, revenue, I’m actually up. Volume on up. This all looks good to me. I should note that if I wanted to, I could again leverage this tariff pass through field over here. If I wanna do an incremental, increase on top of that, five percent, ten percent, whatever, to close this gap fully. But again, in this scenario, I’ve opted to share some value with my customers. I’m gonna take the optimization recommendations here.
I’m gonna get those to market. This all looks pretty good to me based off my strategy here. Again, a lot of these agreements customers are more enterprise type customers.
This looks pretty good. So now that I’ve seen this, I like it. I’m gonna go to my baseline strategy.
And what I wanna do, I wanna lock this in, and I’m gonna select all these. I’m gonna assign the method. And I want to do my optimization. I’m gonna recalculate it.
Alright. My ribbon aligns with what I saw earlier. This all looks good. And then they’re all still selected. I’m gonna submit up here.
Don’t really need a decision by. I’m just gonna submit. And then these prices, if set for auto approval will be pushed to market, ready to go. Otherwise, they’ll go to an approver for review. Okay? So that’s my agreement portion of the business completely handled.
The last thing I have to do is if we recollect, I still have that massive exposure on my transactional side of the business. So I’m gonna handle that. I’m gonna go to my price list. I’m gonna go to my global pricing price list. Again, these are non customer specific, so it’s just a list of products with prices, right, to kind of oversimplify things.
I see my summary ribbon. I see my exposure played out here. I see my as a margin percentage as well.
Again, for the time being, we’ve talked through everything that that Craig highlighted. And as a business, we decide on our strategy. And just to simplify things right now, I’m just gonna pass through a hundred percent of the tariff for the time being, and we can revisit in the future. I’m gonna select all.
I’m gonna go ahead and adjust on my tariff pass through one hundred percent.
Adjust it.
System’s gonna make all the updates.
Alright.
Looks pretty good. I’m pretty much back to zero. Everything’s good. I’m gonna keep these selected.
I’m gonna submit these prices, push them to market, and that’s that. Okay? So, while we shift gears out of the demo, just to summarize, again, what we did there, we went ahead and upfront, we quantified our exposure, right, across our business, inclusive of these these tariffs. Right?
So what’s that impact on the bottom line? And then I went over and I executed various price strategies. Again, looking at my agreements portion of the business, considering the agreements terms to play with different leaders, look at what out there in the market, to find one that makes the most sense for how I want to go to market, my pricing strategy while minimizing the exposure.
I locked it in. I got to market. And then I went over to my transactional side of the business. Again, taking the strategy, I’ve decided there with the straight pass through.
I was able to get that to market as well. All that in about twenty minutes or so. Okay? So that’s great.
We’re done for now. But as we know, this is kind of a, I’m gonna say, relatively ongoing circumstance.
I don’t think that the and we we heard from the survey earlier, we don’t think that the volatility of these market dynamics are gonna go away overnight. They’re here for the near future at least.
So that said, again, I think the kind of the the encouragement here is to revisit this stuff regularly. Again, that’s where a system like this is very beneficial. Notably, the optimization itself is as you’re feeding in data from the market, as you’re refreshing the neural network, it’s seeing all those data points. It’s drawing those conclusions and connections for you and feeding that into your pricing as well.
So offloading a lot of the work, from from you as the pricer. Right? So, that’s kind of the the conclusion of the demo just to show, show you guys what it looks like in action. Again, I think some pretty exciting stuff there.
With that, I’m gonna I’m gonna hand it over to Craig. We’re gonna move into our q and a section for the webinar.
Great work, Cody. And, yeah, if you have a question, put it in. There’s a button at the top with a question mark. Just add your question.
I’ll, there’s a quite a few in there already, and I’ll go through them. First question, Renee. Do you think tariffs will affect airline tickets as well?
Probably not directly. At least we’ll see what the potential retaliation is of whether it goes you know, there’s talk about potentially digital products, services.
Right now, it doesn’t appear there’s gonna be a direct impact in airline tickets. However, when we broke out, the dynamics that are happening on the cost side, fuel is a huge part of airline operating, so tariffs could affect the fuel. So looking at profitability could have an impact there. Also, travel patterns. I know, you know, the there’s been a lot of, angst US and Canada, for example, of we’re not gonna travel the US anymore. I’m in Canada.
Things like that. There could be shift in customer demand. I don’t know how long term that will happen, but there could be overall, market level shifts, shifts on customer demand.
So I would say it doesn’t appear directly at this point, but indirectly definitely could affect airline.
Second, there’s a number of questions on the recording of the session. Will it be available? The answer is yes. We’ll send a link, to the to the recording.
Let’s see. There is a question on, what is the opinion about, broaching contractual notice periods given, you know, the advice to move quickly if there’s a sixty day sixty to ninety day notice. I I think that’s a common question of, you know, do you if you you’re in a stable environment, you’re supposed to give sixty days notice.
And I would say it really varies from situation to situation. Is do you do a force majeure? Do you go against that sort of contract, or is that just industry practice?
And the other, element is how much are potential tariffs going to affect your inventory right away versus, you know, you’re buying on a daily basis versus you have sixty or ninety days of inventory. So those are the things that are typically balanced.
I would say our experience and and my experience more generally is you’d the the you wanna react quickly. Right? There’s this window of expectation of customer change. You wanna take advantage of that. I think there’s understanding in the market of why you may want to respond more quickly. So if, there is an industry practice of sixty to ninety day notice and, you know, maybe you didn’t like that to begin with, now could be an opportunity to, to change that.
Let’s see. There’s, there’s a question. How do you think about price increase versus onetime surcharge applied to customers due to the tariff increases?
There’s, I I would say there’s some benefit to both. So if you do it as a surcharge, number one, from a competitive dynamic standpoint, it’s very visible. There’s a, you know, communication to the customers.
Competitors will understand what you’re doing, etcetera. So the opportunity for a positive competitive behavior that’s happening is is high.
The downside of it is it’s highly visible, right, to the customer. So as soon as a tariff if it were to come away, right, then you have to take that away and you miss the opportunity to do some of the rebalancing that I’ve talked about. So this is where, you know, an easy thing to do is just pass everything along. You know, it’s it’s two it’s ten percent. Right? It goes this is how it impacts your cost. You’re gonna pass it along.
And, there’s some downside of just being totally transparent, and it sort of puts you into the realm of your cost plus provider in the market.
So I would say where where it’s, you know, there’s some benefits and risk to both, and it depends on how you wanna use this to potentially rethink your pricing in general. And if you want to rebalance who you sell to, if you wanna make up profitability in in particularly unprofitable or lower profit segments, then that would point to a more sort of obfuscated response.
It’s a great question.
Let’s see.
Craig, I think we have time for one more.
Yeah. Let’s see. Both hardware and software.
Yeah. There’s there’s lots of questions. We will follow-up. We were not able to answer all the questions in this.
Let’s see here.
One time surcharge.
There’s a question, Cody, for you. How did you implement the contract upper cap logic in the system?
It’s a great question.
Yeah. So that can all be loaded in as kind of business rules. You can tie that into, you know, a customer and product specific cap that can be in place or tied out to set agreements as well. So that actually is an interesting segue to let me, let me pull up the deck again.
Alright. Let’s see here.
Alright, Craig. Can you see the next step slide? Yep. Beautiful. So I think, again, that’s a great segue to kind of how we wanna close this out, which you wanna continue the conversation with you all. Right?
I think this, again, is an ongoing topic. It’s not necessarily going away anytime soon. So a couple ways and, again, we’ll, you know, we’ll we’ll send out some links afterwards here. But, you know, feel free to get in contact with us.
If you’re, you know, you’re not currently a PROS customer, you can always reach out to us. We’re we’re we’re really excited and and look forward to starting the conversation with you. You can always start that direct on on our website here. If you are a pros customer today, I would encourage you talk to your CSM.
So if you saw any of the stuff in the demo that looked compelling, you wanna look at, like, what we would call a tariff readiness diagnostic, where we can look at the solution and identify those gaps and opportunities to adjust for tariffs. Talk to your CSM. They’re primed and ready to have that discussion with you. And then they can also steward any resources on PROS University as it relates to, like, the neural networks or or any, you know, even the what if scenario and the waterfall if you wanna learn more.
Again, I guess with with one minute left, I wanna call out we do have some additional resources. Again, these will go out with the recording. I encourage, I think all these are pretty good reads.
Lots of information out there. It helps us all to be informed. I would I would, you know, share these out as well. So with that, I know we’re at time. I just wanna thank everyone, for joining us today. Craig, I wanna thank you very much for, coming on and talking to us about tariffs and helping us to make heads or tails of this kind of muddy topic right now, and I hope everyone has a fantastic rest of your week.
Thank you.
Yes. Thank you, everyone.