Reed Holden recently wrote this entry in his blog - www.reedholden.wordpress.com  Thought it had some great insight on what to do with pricing during this economic crisis:

The Economy, Parking Lots and Survival Pricing

I got up early this morning to catch up on comments from last night’s debate and was devastated to hear about the drop in Asian financial markets.  Japan, 10%, Indonesia in free fall, that’s an indication of what we have in store for us today and over the coming days.  The Fed made a mistake yesterday when they failed to drop interest rates.  That was the one thing that could have prevented what we are seeing and going to see today.  Not that they’re doing everything wrong–the move to purchase corporate financial paper directly is great because it finally admits that the traditional methods of pumping cash into banks isn’t working–the banks are hording the cash and not easing debt.  Just got a news flash that the central bank is dropping rates but it might be too late to stem the lowering tide.

In the past year, we’ve been talking about how pricing should be used during a recession.  Now, we’re going to talk about how pricing should be used during a depression.  But first, I want to talk about one of my core theories of pricing and business strategy: parking lots.  Over the years, I’ve developed a measure of corporate success.  Good businesses, well managed ones, have parking lots full of clean, relatively new cars.  Lousy businesses, poorly managed ones, have partially empty parking lots with somewhat dirty and older cars.  You can guess why.  During that time, I’ve seen too many of the empty ones.  These days, parking lots with cars–any cars are going to be better than parking lots with no cars.

Yesterday, a commentater said that this was the second worse economy in the history of the country–1929 was number one.  In 1933, 25% of the workforce was unemployed.  25% of the families didn’t have a breadwinner, had trouble putting food on the table, clothes on the kids and many lost their homes.  A pall hung over the land.  It was bracketed by two world wars that killed too many and those that returned had to deal the horrors of their experience.  I don’t think that we’re going to have to deal with two world wars, but there will be continuing regional ones.  And, unemployment is going to be worse than 2001 when it hit 10%.  We have yet to see the depths of where it will go–don’t kid yourself on that one.  This could be worse than 1933 because it is driven by the core of our economy–the availability of credit.

Times like this calls for Survival Pricing.  Survival Pricing focuses on doing the things that help businesses survive.  Parking lots will get emptier as workforces are trimmed and the cars are going to be older and dustier but there are things a business can do today to assure that the business will a) survive and b) keep as many cars as possible in the lot.  Key elements of Survival Pricing are:

1. Move to Incremental Cost Pricing–real incremental costs.  The job of pricing is to keep contribution dollars flowing into the system.  Any dollars are better than no dollars.  If you are in a value-based space, you’re lucky but don’t kid yourself, if demand starts slipping, a cost based approach will assure that your customers are getting the best possible prices.  They will need those prices to survive.
2. View labor as an incremental cost.  Yes, we want to protect the parking lot but you can cost yourself out of the market today.  Your job is to keep the engine going, not to keep everyone employed.  If you wait to long to deal with this, you may lead the company to bankruptcy and/or insolvency, meaning everyone loses their jobs.  Call the union guys in and get them involved with this. 
3. Eliminate all unecessary costs.  Forget the fancy retreats (AIG Execs–what were you thinking?).  Dump the jet and first class travel.  Senior execs–set the example for the rest of the team.  Close the executive dining hall and bring a sandwich–heresy yes, but it sure does set the example.  Eliminate all “corporate” and brand advertising and promotion.  Those are long term investments.  Instead, divert those budgets to sales effectiveness.  Do better with deal tracking, buying center analysis, customer level value propositions and dealing with RFP’s.
4. Continue to look for valued services that will keep customer costs low.  Look for things like faster and more reliable delivery that keeps customer costs low, better training and on-line support that improves efficiency, improved packaging.  Don’t cut those services, instead offer them to the customers that will pay for them at a reasonable price–even based on the costs.
5. If price buyers and poker players want “bare to the bone” pricing, give it to them but take away the value services.  If they scream, that’s a good thing. 
6. Execute brutal fences around those valued services.  You can’t afford to give them to price buyers any more so don’t.
7. Determine the true cost to serve a customer and if you’re losing money, dump them.  Let the competition serve them.  If you really, really, really know your true cost for serving a customer and your prices are below those costs, you can’t afford to serve them any more.  Get over it.  No more BS justification.  Just do it and do it fast.
8. Change your pricing strategies, especially if they are either skim or penetration.  In downturns, customer demand is inelastic so eliminate penetration pricing to build volume or share.  Don’t get sucked into price wars.  Skim strategies might leave you very vulnerable to competitors.
9. Have a steady hand on the tiller.  This is not the time to panic, it is the time to be strong and confident.  Show people that confidence.  Be honest with them but you want them to have confidence in you.  Especially over pricing.  You can’t let business conditions rattle you or your people.  If you don’t do the things on this list, you may very well fail.
10. Become a value leader in the firm.  For pricing?  You betcha.  Confidence in value leads to confidence in pricing.  Confidence in pricing leads to survival during these difficult times.

There will be much more coming on this.  Probably too much.  Good luck and let me know how you’re doing.