Pricing Strategies Under Shifting Tariffs

Executive Summary:

In this article, we explore general pricing strategies during tariff changes (Footnote 1) that companies should consider. It is important to note that short-term, and perhaps long-term, changes in tariffs must be considered, however, an effective pricing strategy looks beyond just cost recovery. While managing increases from suppliers is important, pricing is virtually always a necessary response.

In the longer-term, strategies such as resourcing and part redesign are often required and help ease the need for price increases. These follow-on strategies will be explored in a subsequent article.

Finally, even if your company primarily has a US supply base, tariffs will affect (i.e., increase) your material and component costs, as others are drawn to your US suppliers and supply & demand landed prices work toward equilibrium. Translation: You will probably have to raise prices in every case.

The following is a conversational Q&A format, covering some of the key questions we are currently fielding. It is presented toward the perspective of a US importer.

How long should I wait to address cost increases driven by tariffs?

Move Now, Quickly and Decisively: The adage “it is better to ask for forgiveness than permission” often applies here. Many, especially large, customers have a “playbook” whereby they have required steps to minimize and possibly significantly delay your price changes. You must quickly navigate customer resistance. Understand your value to the customer and avoid long negotiation processes, or you may lose margin dollars for an extended period.

We suggest an approach to let customers know that while the increases are not optional, the process will be transparent, and if an inadvertent overcharge occurs, or as input costs begin to fall, reimbursement and price corrections will be prompt. (See Footnote 2).

How do I determine the impact of cost increases from tariff changes?

Analyze: Review all your products, component/material orders, and bills of material (BOMs) for country of origin and assign the appropriate tariff (changes). Calculate the actual and/or expected cost increase, by part, category, and customer. In situations where systems data is difficult to gather and/or analyze, we rely on more manual estimates, applying the Pareto Principle (80-20 rule) to approximate the impact within categories.

It is good to note that, where you might be purchasing a complex component, only some percent of the total cost may be impacted by tariffs so trying to apply an across-the-board increase is likely to be disputed by many customers. Your approach needs to come across as well-researched, analytical, detailed, and fair but firm.

Which customers/parts should I start with?

Sort/Prioritize Customers: We typically work with clients to categorize customers into five groups:

A. Top: Must Keep

B. Above Average

C. Average

D. Below Average

E. Bottom

We use a proprietary Customer Prioritization Matrix (which assesses factors such as size of business, profit contribution, payment timeliness, potential growth, etc.,). Going through a detailed customer prioritization helps identify which customers to focus on first, which merit the most time/energy, and which customers present the best opportunities for improving profit (or protecting margins). We typically start the process with the “A” customers. After that, priorities depend upon the analysis.

Pro tip: In our experience, and somewhat ironically, the best profit improvement opportunities from pricing changes often come from customers in the “Below Average” and “Bottom” categories.

What strategies and tools can I use to recover the cost increases while managing the risk of losing the business?

Pricing Strategies:

Tariff Cost Recovery: From the analysis above, develop a customer-by-customer review of the minimal cost changes required for tariff cost recovery by part.
Surcharges: For Producers and Distributors, initially we recommend immediate but temporary surcharges. Implementing surcharges enables fast cost coverage while showing customers you see these as temporary increases and are flexible. Surcharges also provide a level of transparency that will give customers the sense the changes are fair and easily monitored. Surcharges are an effective way to allow transparency, isolate the portion of price related to the tariff, thus enabling easier analytics, for customers.

Example: Several of our clients are suppliers to customers whose systems do not facilitate surcharges. In these cases, we work with our clients and their customer(s) to “migrate” changes, normally temporarily, to a handful of larger-volume parts. We do this in such a way that the price increases on these few, large volume parts will cover cost increases for all parts. Occasionally these customers are already under contracted material indices and have previously set up to make regular calculations and adjustments for material costs based on published fluctuations in the indices. In these cases, adapting this adjustment mechanism to tariff-driven changes is usually relatively simple.

I am under a long-term contract with some of my large customers for long-term pricing. What are my options?

We often recommend taking the position that uncontrollable cost changes, like tariffs fall under Force Majeure and/or UCC provisions. We are businesspeople, not attorneys, so be sure to talk with your attorney before taking any action where your business is exposed to meaningful risk. (See Footnote 2)

What if I do not import?

As we noted in the Executive Summary, if your company uses materials, e.g., steel sourced from the US, not subject to tariffs, you should still probably plan to change your prices.

In the case of steel, for example, eventually the increases will likely affect steel pricing (costs), even of US-supplied materials, until supply & demand equilibrium price is achieved. We strongly recommend careful monitoring of competitors (and relevant substitutes, as applicable). We also recommend, when possible, quickly identifying (and possibly mirroring) your most relevant competitors’ price changes.

Example: If Campbell’s soup company imports steel for its cans and raises its prices 3% to cover the increase, we would recommend other soup companies, such as Progresso (owned by General Mills), at least temporarily, match the 3% price increase – even if their steel is not imported.

Progresso’s sales team would probably argue against taking the increase, but by doing that, they risk starting a price war and ultimately pulling the profits down for the entire industry and potentially not being able to cover the steel cost increases from US supplied steel which, as we noted above, will likely also increase as the steel industry works toward post-tariff supply & demand price equilibrium.

What are some of the curveballs?

Competitors: Competitors might not match price increases to cover tariffs which can be a wrinkle and require analysis of and strategies to address the specifics. Depending upon the situation, early analysis and “what if” scenario planning should be assessed to address potential competitor actions and positions.

Substitutes: When customers can readily switch to other substitute products or materials, it presents a complication in the analysis that also must be addressed.

Imbalance in supply strategies or cost position: When one company sources from tariffed countries and another competitor sources from non-tariffed countries, or otherwise has significantly lower costs, as noted above, these situations can also require significant analytics and review of sourcing strategies (to be covered in an upcoming article).

Unexpected further changes: As US leadership is “mixing it up,” it is important to monitor changes, be agile, respond quickly and decisively to changes. As we started the article: Move now, quickly, and decisively!

Next Steps:

We have counseled organizations across a wide spectrum of industries with pricing and sourcing strategies that protect and improve the bottom line.

In this article we provided some basic thoughts, tactics, and strategies to address fluctuating tariffs, however, it is not intended to cover every situation. We hope it has been helpful and understand that every instance is unique. Now is the time to ensure you have access to the expertise needed to navigate the potential hazards created by fluctuating supply costs, whether tariff-driven or not.

If you would like to discuss your unique issues, you may contact us:

Tim Emmitt: email: TEmmitt@BridgeExecs.com Mobile: 248-807-1164
Greg Simsa: email: GSimsa@BridgeExecs.com Mobile: 616-401-0789

Footnotes:

1. Among numerous tariff (and import fee) changes, on February 11, 2025, President Trump restored Section 232 Tariffs. Restoring these tariffs had the effect of closing existing loopholes and exemptions and restoring a 25% tariff on steel and elevating the aluminum tariff to 25%. Tariff changes are very fluid and fast moving under Trump 2.0 driving the need to quickly evaluate and deploy strategies. https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/

2. Note: Many large companies have long-term supply Agreements and strict policies to not accept price increases. When supply Agreements attempt to restrict price movements, and really for any area of significant concern, we highly recommend contacting an experienced Attorney in Contract Law, including Terms & Conditions, ICC, Force Majure, etc. There are several truly expert cost-recovery Attorneys we have worked with and will provide referrals upon request.

3. As noted above, we will follow-up shortly with another article addressing longer-term solutions, such as resourcing/supply-chain changes. Please let us know if you would like to be added to distribution.