Companies are reluctant to raise prices on inflation-squeezed customers and instead are looking to optimize their cost structures, according to Paul Goydan, a managing director and senior partner at Boston Consulting Group who specializes in cost-related issues. 

Price increases, according to Goydan, are “largely off the table,” he told CFO Dive in an interview last week. “It is now about being efficient and competing, based on efficiency, while not starving your three- to five-year growth bets,” including artificial intelligence.

Inflation may have been a concern for some time, but in early 2023, companies were able to pass on the cost by raising the prices of finished goods or increasing the unit price of items by including less product in a package. This year, however, consumers are likely to act more discerning, picking up on unit price increases and trading down where necessary. 

“Almost all the salary gains have gone back into the cost of living,” he said. U.S. consumers “are much more aware of what they’re spending, they’re more aware of what everyday goods cost…in Europe I hear a lot more about energy prices.”

Price, said Goydan, isn’t necessarily a "no-go" topic, but it is not the first area of focus for many executives. Still, companies can consider proactively managing their pricing.

“Times of uncertainty are opportunities for companies to go on offense. This means exploring innovative monetization strategies, including outcome-based pricing and recurring monetization models versus one-off transactional approaches,” he said.  “Such models also allow companies to align value in ways that conventional models, like per-unit pricing and time and materials for service, often cannot.”

Companies that don’t have a pricing strategy to address the current inflationary economic environment are at a competitive disadvantage, he argued.

“The risk is that they do not keep their eye on the ball when it comes to pricing and lose the capability to manage price as a core competency in the long run,” he said.

Efficiency focus

As companies haven’t been as easily able to raise prices, the focus on cost structure optimization began to take shape in the second half of 2023 going into 2024, he said.

“Companies had layered cost on top of cost to solve … the fires they were fighting,” he said. “Many corporate leaders really looked at the efficiency of their operations, and figured out what they didn't need.” 

There are four ways companies are seeking to add more efficiency to their operations: procurement and vendor strategies, including renegotiating vendor contracts; addressing weak links in the supply chain, including a shift away from costlier modes of transportation; aiming for more effective use of marketing spending; and reviewing talent deployment, according to Goydan.

Though some companies are laying off staff, many are being thoughtful around where they need talent, and instances where it may be cost effective to upskill or reskill existing team members.

Corporate training programs “help you if you're growing in one area, and you don't need to grow in another…you would just reallocate and move talent over,” he said.

Efficiency strategies vary by industry. Restaurants, said Goydan, are looking at automation to help them get the highest return on frontline labor, while banks, with the help of technology, are reviewing processes to better manage risk. Meanwhile, energy companies are helping engineers become more efficient through generative AI adoption.

Supply chain has also become a key cost focus. While it has been a major pain point since early in the pandemic, the emphasis now is different, said Goydan.

If supply chain were a movie, the subtitle in 2022 would have been, "Where are my goods," Goydan said. This year, he said it would be, "Oh my goodness, this cost me a lot of money."