Preparing for Tariff Volatility: A Practical Pricing Playbook
Companies that export or that buy components / raw materials that originate outside the UK, particularly if the target market or supplier location is the USA, face a lot of tariff uncertainty right now. Are tariffs on or off? If on, what level? How long will they last? Will we impose retaliatory tariffs?
This obviously has pricing implications, but managing tariff uncertainty goes way beyond that into other issues such as supply chain management.
I have been reviewing a lot of the advice on the web, and have brought it together into one article. I hope this is helpful.
There are 9 sections that follow, and each lists not just what you should be doing but how you can implement the actions.
1. Map Out Your Tariff Exposure
What to Do
Identify Direct and Indirect Tariff Impact
List all imported inputs (e.g., raw materials, components) and exported products subject to existing or potential tariffs.
Mark each by region or trade agreement to see where the risks (or advantages) are highest.
Assess Your Competitive Position
Investigate whether competitors are similarly exposed or if they enjoy local sourcing or more favourable trade agreements.
How to Do It
Collaborate with Procurement: Run a spend analysis on suppliers to see which countries you’re most reliant on. Identify alternative suppliers in tariff-free or lower-tariff regions.
Use a Tariff Tracking Tool: If your ERP (Enterprise Resource Planning) system or a third-party software can monitor duty changes, set up alerts for any relevant tariffs that change or come into force.
Create an Exposure Matrix: For each product or raw material, record potential tariff rates (e.g., 5%, 10%, 25%) and note how they affect landed costs.
Rolling It Out Internally
Form a Task Force: Include procurement, legal, finance, and sales teams. They should meet regularly (e.g., at least monthly) to review any new tariff developments or changes.
Ownership & Accountability: Make one person - often the Head of Pricing or a designated trade specialist - responsible for keeping this matrix updated and circulating changes throughout the organisation.
2. Build Scenarios and Trigger Points
What to Do
Forecast Multiple Tariff Scenarios
Consider best-case, likely-case, and worst-case tariff rates and durations.
Define Organisational Responses
For each scenario, decide what your pricing response will be (e.g., immediate pass-through, partial absorption, surcharges). Don’t wait until tariffs are imposed and then have a panicked rushed response, plan ahead.
How to Do It
Scenario Modelling: Use spreadsheet models or specialised software to calculate projected sales volume, costs, and margins under each scenario.
Define Trigger Thresholds: For instance, “If tariffs exceed 10%, we will apply an X% surcharge. If they go beyond 20%, we will re-source materials.”
Rolling It Out Internally
Align with Finance: Ensure the finance team validates each scenario’s assumptions and that you have sign-off on the financial viability of your triggers.
Document a Playbook: Create a simple but clear “Tariff Playbook” that details the action plan for each threshold. Circulate it to the executive team for approval.
3. Rationalise Your Supply Chain
What to Do
Diversify Suppliers
Minimise dependence on tariff-heavy regions. Evaluate reshoring or nearshoring if it gives you a cost or reliability edge.
Investigate second sources, split purchases between them where possible to allow rapid switching should the need arise.
Balance Inventory
Consider selective stockpiling if tariffs are likely to spike, but avoid overstocking to the point of unnecessary holding costs.
How to Do It
Supplier Risk Assessment: Assign a risk rating to each supplier based on location, potential tariff exposure, and the importance of their materials.
Negotiate Risk-Sharing: Some suppliers are open to contract terms that split tariff costs, especially if you have long-standing relationships.
Rolling It Out Internally
Procurement Workshops: Hold workshops with your procurement team to identify potential new suppliers and negotiate revised contracts.
Collaborate with Logistics: Ensure your logistics team can handle any new shipping routes or inbound points if you switch suppliers or change manufacturing bases.
4. Choose the Right Pricing Strategy (and Implement It)
Tariffs often demand a hybrid or flexible approach. Below are the most common strategies and the practical steps for introducing each one.
A. Cost-Plus (with Markups or Surcharges)
What It Is: Add a margin on top of cost - including tariff-related costs - to maintain profitability.
How to Implement:
Update Cost Estimates: Ensure your cost sheets reflect the latest duty rates.
Decide on Markup: If a product costs £50 plus a 10% tariff, you might apply a 25% markup. Communicate clearly how much is due to core cost vs. tariff.
Customer Communication: Be open and transparent with customers about potential impacts from tariffs, and how you plan to handle them. If you think you need to change prices, let them know as soon as possible and give them as much notice as possible.
Incorporate a Surcharge Line: Clearly label it on customer invoices (e.g., “Tariff Surcharge”) so that clients see which portion of the price is temporary.
Testing & Rollout:
Pilot with Key Accounts: Implement surcharges for a small customer segment or product line first. Gather feedback and measure churn or pushback.
Monitor Sales Data: Track whether customers reduce order volumes when surcharges appear.
B. Dynamic Pricing
What It Is: Adjust prices in real time (or near real time) based on cost changes, competitor moves, and demand signals.
How to Implement:
Invest in Analytics: Use an e-commerce or pricing platform capable of real-time updates.
Set Rules and Constraints: e.g., “Prices can’t change more than once per week or by more than ±5%.”
Automate Approvals: Create quick internal approvals - especially if you sell into B2B markets with longer negotiation cycles.
Testing & Rollout:
Run A/B Pricing Tests: Within a specific region or product line, test dynamic adjustments vs. static prices and compare sales, margin, and stock levels.
Iterate: If dynamic pricing leads to large swings, refine your rules to maintain customer confidence.
C. Value-Based Pricing
What It Is: Price based on how much the product is worth to the customer, rather than strict cost inputs.
How to Implement:
Map Customer Segments: Identify which segments place a premium on performance, brand, or service.
Calculate Willingness to Pay: Surveys, interviews, and historical transaction data can reveal the maximum amount customers will pay.
Articulate Value: Show customers how you are resolving their pain points or providing unique benefits that justify a higher price.
Testing & Rollout:
Small-Scale Launch: Introduce a premium-tier product or service at a higher price.
Customer Feedback Loops: Collect feedback on the perceived value vs. cost to see if the new price is justified.
D. Short-Term Promotions
What It Is: Offer time-limited discounts, bundles, or loyalty incentives to offset temporary tariff spikes.
How to Implement:
Target the Offer: Focus on price-sensitive segments first or channels where competition is fiercest.
Set Promotion Windows: For instance, a one-month discount until you clarify if tariffs will persist.
Testing & Rollout:
Gauge Redemption Rates: Track how many customers take up the offer. Low uptake may mean they’re not that price-sensitive (or that the offer isn’t appealing enough).
Assess Cannibalisation: Ensure you’re not just displacing profitable full-price sales.
5. Use Trade Agreements and Rebates
What to Do
Leverage Existing Agreements: Check whether your products or components qualify for reduced duty rates under free trade zones (FTZs) or agreements such as the EU-UK Trade and Cooperation Agreement or CPTPP.
Implement Rebate Systems: Set up systems that automatically calculate rebates owed to you or your customers in tariff-heavy transactions.
How to Do It
Compliance Tracking Software: Automate the process of verifying product origin, filling out certificates, and staying up to date on rule changes.
Rebate Management: Use a centralised system or your ERP to record every applicable rebate. This reduces manual errors and ensures you claim everything you’re entitled to.
Rolling It Out Internally
Train Finance & Sales Teams: They need to understand the ins and outs of rebate qualifications so they can give accurate quotes and apply for entitlements promptly.
Supplier Negotiations: Where possible, push some tariff or customs risk back to suppliers, especially if they have better access to trade agreement benefits.
6. Communicate Clearly and Transparently
What to Do
Explain Pricing Changes: Customers resent surprises. Acknowledge the role tariffs play in rising costs.
Use Data: Show relevant metrics or examples (like a before-and-after landed cost) if customers request justification.
How to Do It
Draft a Standardised Message: A short explanation in quotes, invoices, or emails that clarifies what portion of any price increase is tariff-driven.
Hold Webinars or Customer Calls: If your customers are B2B partners, hosting an interactive session can defuse concerns and maintain trust.
Work Collaboratively: develop deeper partnerships and relationships with both key customers and key suppliers.
Rolling It Out Internally
Sales Team Training: Arm your sales reps with talking points and FAQs so they can handle tough questions.
Regular Updates: Create a monthly or quarterly “state of tariffs” bulletin that goes to both internal stakeholders and key customers if that level of transparency is appropriate.
7. Monitor Performance and Refine
What to Do
Set KPIs: Track metrics such as unit volume, margin per product, customer churn, and rebate claims.
Check Competitor Activity: Regularly benchmark your prices and surcharges against competitor offerings.
How to Do It
Pricing Dashboard: Build a live or weekly dashboard pulling in sales, margin, and cost data.
Monthly Pricing Reviews: Bring cross-functional leaders together to see if your strategy needs refining (e.g., adjusting surcharge levels, dropping promotions, or pivoting from cost-plus to more of a value-based approach).
8. Test, Adjust, and Document
What to Do
Pilot Initiatives: Before rolling out a big change - like adding a universal surcharge - test it on a single product line or region first.
Document Outcomes: Record everything: what you tested, the results, lessons learned.
How to Do It
Use Control Groups: If your market is large, select a subset of customers or products to act as a control group (who pay the old price) vs. a test group (who pay the new price).
Analyse Differences: Compare revenue, margin, and retention rates between the two groups.
9. Embed Agility in Your Organisation
What to Do
Form a Permanent Pricing Council: Include heads of finance, sales, supply chain, and marketing.
Give Clear Decision Rights: Define who can approve immediate price updates in response to sudden tariff changes.
How to Do It
Formal Governance: Develop a pricing governance policy that outlines how decisions are made, who signs off, and how quickly changes can roll out.
Empower Local Teams: In large or multinational firms, ensure each region can react promptly to local tariff shifts (within certain guidelines).
We’re heading towards some interesting times. Good luck navigating through them.
Addendum: You’ll recognise that this isn’t my usual writing style. I researched and read a number of online articles on tariffs, but then used ChatGPT to simplify all the content into one article. I then edited it and added things I thought ChatGPT had missed. Just want to be open about the process for this extra bit of content.