What Tariffs Mean for Your Pricing Strategy

Understanding Tariffs and Pricing

Tariff increases are looking like they will be an inevitable reality in the near future, and your pricing strategy may need timely adjustments to stay competitive. Experts warn that essentials like eggs and coffee could see significant price hikes in 2025, making it crucial to plan ahead. Stay informed—watch our latest Power to the Pricing video to learn more.

Tariffs impact costs, supply chains and overall pricing strategies for businesses. Tariffs create price volatility and force companies to re-think their pricing, cost management and supplier relationships.

Looking ahead in 2025 there is a possibility of new tariff fees between the U.S., China, Canada and Mexico. Businesses should prepare for potential changes in trade policies that will impact costs, supplier agreements and overall profitability. This means businesses need to be able to adapt in real time.

How Tariffs Affect Supply Chains

Tariffs directly impact supply chains by increasing costs on imported goods, resulting in price fluctuations across industries. Look at the following to minimize impact:

• Supplier Diversification: Relying on a single supplier in a tariff affected region increases risk. Exploring alternative suppliers in tariff free or lower tariff countries can mitigate risk. Switching to a supplier within your own country will allow you to avoid tariffs all together and hopefully your supplier isn’t importing from overseas.
• Cost Absorption vs. Price Increase: Some businesses absorb the extra cost of tariffs, others pass it on to the consumer. Finding the right balance is key to maintaining market position.
• Inventory and Logistics Strategies: Companies may need to re-evaluate stock levels and distribution strategies to minimise tariff exposure and cost.
• Manufacturing Relocation: Some businesses move production to a country with lower tariffs to avoid excessive import costs.

Rebates as a Strategic Tool

Rebates and trade incentives can help businesses offset tariff driven cost changes. Effective rebate management allows you to:

• Optimise Supplier and Distributor Agreements: Understand the full scope of rebate opportunities within trade agreements to offset costs.
• Increase Profitability Without Price Increase: Instead of raising the consumer price, businesses can use rebates to recover margins and stay competitive.
• Compliance and Accuracy: Automated rebate tracking ensures you get the rebates you’re entitled to without manual errors or missed opportunities.
• Leverage Tariff Rebate Programs: In some regions businesses can apply for rebates or tax credits to recover some of the tariff costs.

Using Trade Agreements to Reduce Costs

Trade agreements can provide tariff relief or duty exemptions, businesses can save on import/export costs. To take advantage of these agreements businesses should:

• Stay up to date on Trade Policies: Know which agreements apply to specific products and regions. Do your own research!
• Streamline Compliance: Automated compliance tracking reduces admin burden and helps companies keep up with changing trade regulations.
• Use Free Trade Zones (FTZs): Some businesses use FTZs to delay or avoid tariffs on imported materials and reduce financial strain.
• Agreements like USMCA (United States-Mexico-Canada Agreement), CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and EU trade exemptions can give businesses lower tariffs and more market access. Knowing how to navigate these agreements can be a game changer.

Currently Government-Backed Rebate Programs for U.S. Businesses

Businesses importing or exporting to and from the U.S. in 2025 and beyond should explore these rebate programs:

• U.S. Duty Drawback Program: Allows businesses to claim refunds on tariffs paid for imported goods that are later exported.
• Foreign Trade Zone (FTZ) Program: Helps companies defer, reduce, or eliminate tariffs on goods stored in designated zones before entering the U.S. market.
• Canada’s Duty Relief and Drawback Programs: Provide Canadian businesses with tariff rebates for goods that are later re-exported.
• EU Tariff Suspension and Exemption Programs: Offer duty exemptions on certain raw materials and components unavailable from domestic sources.
• China’s VAT Rebate for Exporters: Offsets import tariffs imposed by other countries to maintain competitive pricing.

Which Pricing Strategy to use for Increasing Tariffs?

When tariffs increase costs businesses can use these pricing strategies to stay profitable and competitive:

Dynamic Pricing

Dynamic pricing means adjusting prices in real time based on demand, competitor pricing and cost changes.

For businesses in fast moving markets hit by tariffs. In highly volatile tariff environments where costs fluctuate frequently, such as the electronics industry, dynamic pricing can help businesses adjust in real time to maintain margins.

Cost + Pricing

Cost + pricing means businesses maintain profitability by pricing based on production cost + a fixed margin. Businesses hit by tariffs can use this model to adjust prices and maintain a predictable margin.

For industries facing stable but gradually rising tariff costs, such as manufacturing, cost-plus pricing ensures transparency and maintains predictable profitability.

Value Pricing

Instead of just adjusting based on cost, value pricing considers what the product or service is worth to the customer. This allows businesses to justify price increases by highlighting quality, exclusivity or added benefits. Premium brands that have strong differentiation, such as high-end apparel or innovative tech products, can justify higher prices based on their unique value proposition rather than cost alone.

Price Skimming

Price skimming means setting high prices initially and lowering them over time. For businesses introducing new or exclusive products that are less tariff sensitive.

Promotions and Discounts

Offer strategic promotions, bundling or discounts to offset price increases and maintain customer loyalty. These temporary pricing strategies can help you navigate short term tariff impacts without raising prices permanently. If tariffs create short-term cost spikes rather than long-term increases, offering limited-time promotions or bundling strategies can help maintain sales without permanently raising prices

Selecting the right pricing strategy is critical when dealing with tariff-related costs. Different scenarios call for different approaches.

Companies Preparing for Tariffs in 2025

Tariffs are looming and businesses across multiple industries are taking action. For example:

• Retailers and Manufacturers should expand their supplier networks so they’re not too dependent on one country for materials or supplier.
• Automotive Companies should use trade agreements and optimise their supply chain to minimise tariff related price increases.
• Tech Firms should start using real-time analytics to dynamically adjust pricing based on tariff updates and consumer demand shifts.

Consumer Price Sensitivity and Market Response

While companies are planning around tariff-induced cost changes, consumer response to price changes is key to market dynamics. Different market segments react differently:

• Luxury vs. Essentials: Consumers buying luxury items may not be as price sensitive and will keep buying even at higher prices. Essentials like groceries or household items see more consumer pushback on price increases.
• Brand Switching and Substitutes: Budget conscious consumers will switch to cheaper alternatives when prices go up. For example if coffee prices increase due to tariffs, premium brands will maintain demand from loyal customers, while price sensitive customers will opt for generic or local alternatives.
• Elasticity of Demand: Companies need to measure price elasticity – products with high elasticity like non-essential electronics will see demand drop when prices go up, while inelastic goods like prescription medication will see minimal demand shift.
• Perception of Fair Pricing: Sudden price increases without explanation will damage brand perception. Transparent communication around tariff-driven increases will retain consumer trust and brand loyalty.

Knowing these will help companies fine tune their pricing strategy, balancing profitability with consumer price sensitivity.

Real-Time Analytics in Pricing Execution

In a tariff impacted world, real-time analytics is key to executing your pricing strategy. With accurate up to date data you can:

• Monitor Cost Changes in Real Time: Adjust pricing based on real-time tariff updates and supplier costs.
• Analyse Competitive Pricing: Keep an eye on your competitor’s prices to see if they are feeling the impact of tariffs on their bottom line.
• Automate Pricing Adjustments: Implement dynamic pricing that adapts to market conditions and doesn’t require constant manual intervention.
• Improve Forecasting and Scenario Planning: Simulate the impact of potential tariff changes and prepare alternative pricing strategies.

Adjusting to the New Trade Landscape

With tariffs still shaping the global trade landscape, businesses should be proactive with their pricing strategy. By optimising supply chains, using rebates and trade agreements and real-time analytics businesses can navigate tariff impacts and stay profitable.

A good pricing strategy not only helps you survive trade disruptions but also gives you a competitive edge in a changing market.