For about three years, pricing was easy. Input costs were rising across the board, customers expected increases and competitors were moving in the same direction. Many companies raised prices further than their costs required, and margins in a number of consumer and business-to-business categories ended the period higher than they began it.
That window has closed. Inflation has eased, customers are scrutinizing every increase, and procurement teams in business markets are asking suppliers to justify prices that were set when costs were higher. Companies that treated the last few years as evidence of pricing power are finding out how much of it was borrowed.
What customers learned
The inflation period changed customer behavior in ways that have outlasted it. Shoppers compare prices more often and across more retailers. In our work with grocers, the share of households regularly buying in three or more chains has risen by about a third since 2021. Private label penetration has climbed and has not fallen back.
Business buyers learned something similar. Procurement teams that accepted increases under pressure have since added indexation clauses, shortened contract terms and introduced more frequent competitive tenders. A price increase that passed easily in 2022 now triggers a review.
Customers forgive a price increase they understand. They do not forgive one they think was taken because it could be.
Separating real pricing power from inflation cover
The first task is to work out which price increases were earned and which were carried by the general tide. Three tests help:
Volume response. Where prices rose and volumes held while competitors' fell, there is likely genuine differentiation. Where volumes held only because everyone raised prices together, there is not.
Customer switching. Loyalty card, contract renewal and churn data show whether customers who faced the largest increases left at higher rates.
Price gap to the alternative. The gap between your price and the customer's next-best option, whether a competitor, a private label product or doing nothing, is the clearest measure of how much room is left.
In most portfolios we review, between a quarter and a third of products have real pricing power. The rest have been carried by market conditions, and their prices will be tested.
Where to hold, where to give back
Giving price back across the board is expensive and usually unnecessary. A more targeted approach protects margin while repairing customer trust where it matters most.
For products with real pricing power, hold price and invest in what makes them different: quality, service, availability. For high-visibility products that shape price perception, such as staples in grocery or entry-level plans in software, a selective reduction can change how customers see the whole range at modest cost. One retailer we worked with cut prices on 140 key items, about 2 percent of its range, and saw its price perception scores rise to levels it had not reached in five years, with a gross margin cost of less than half a point.
For everything else, the work is less visible but often more valuable: tightening discount governance, removing promotions that bring no new customers, and simplifying a price architecture that grew complicated during the years of frequent increases.
Building pricing as a capability
The companies that handle this well treat pricing as a permanent function, not a reaction to cost changes. That usually means a small team with authority over list prices and discounts, a monthly review of price realization by product and customer, and clear rules about who can approve exceptions.
It also means better information. Many companies still set prices from cost-plus formulas and competitor spot checks. Those that track customer response, price elasticity and competitor moves continuously tend to capture two to four points of margin that others leave behind, without needing a single headline increase to do it.
The inflation years rewarded boldness. The next few will reward precision.
