In my role as the Head of Pricing Science at Spresso, I’ve combined a deep background in machine learning with real-world e-commerce experience to develop novel powerful pricing intelligence tools for online retailers. Spresso’s approach to pricing optimization has already driven substantial profit gains for our clients by refining how online retailers set and adjust prices. Now, with tariffs on the horizon, it’s more important than ever to adopt data-driven strategies that balance profitability with customer retention. Here are five ways to stay ahead of the coming challenges:
1. Strategically absorb tariffs where possible
If you have any efficiency advantage that lets you limit price increases, this is the time to leverage it. Otherwise, this is the moment to develop operational efficiencies.
In broad cost shock scenarios, businesses should focus less on losing customers to competitors and more on preventing overall market contraction. As tariffs erode consumers' real income, the entire market will likely shrink. Your optimal pricing strategy might involve restraining price increases to maintain volume, especially for products with high elasticity.
The extent to which you pass cost increases to consumers should be guided by demand sensitivity. In competitive markets with highly elastic goods, you may only pass on part of the increase while accepting lower margins. In markets where you have pricing power and demand is inelastic, you can pass more costs through to consumers. A realistic assessment of your products' elasticity is crucial for an effective response.
2. Track market dynamics and elasticity changes
Elasticity evolves over time. Demand is typically less elastic initially and becomes more elastic as consumers find alternatives. Consider gasoline: if prices doubled overnight, consumption would remain relatively stable due to lack of immediate substitutes. Over months, however, consumers would adapt through carpooling, public transit, or electric vehicles, making demand increasingly elastic.
This means optimal pricing immediately following tariff implementation will differ from pricing six months later, even if your cost structure remains unchanged. Successful navigation requires continuous monitoring of market conditions and consumer behavior to inform dynamic pricing adjustments.
Remember that elasticity varies significantly across your product portfolio. Some SKUs can absorb price increases better than others. A granular approach to pricing changes—rather than across-the-board increases—will optimize revenue and protect market share.
3. Strengthen your value proposition communication
When raising prices, clearly emphasize your superior quality, brand reputation, and exclusive features. Consumers who understand why your product commands a premium are less likely to abandon you when prices increase.
During economic shocks, consumers rapidly reassess which purchases are essential versus discretionary. Strategically position your products toward the "essential" end of this spectrum through targeted messaging that highlights practical benefits and unique value.
4. Leverage customer data for retention
In cost-shock environments, customer acquisition costs typically rise, making retention even more valuable. Scale back broad promotional spending in favor of targeted initiatives. Deploy data-driven loyalty programs, personalized offers, and tailored communication to reduce churn and improve lifetime value.
Use analytics to segment customers by price sensitivity and purchase frequency. Offer more aggressive incentives to highly price-sensitive segments while maintaining margins on less sensitive ones. This precision approach preserves overall profitability while addressing the needs of your most vulnerable customer relationships.
5. Implement responsive pricing technology
Traditional static pricing models break down during market disruptions. Consider implementing systems that can automatically adjust prices based on real-time competitive data, inventory levels, demand patterns, and cost changes.
A robust pricing platform can run sophisticated what-if scenarios to project outcomes of different pricing strategies before implementation. This reduces risk during uncertain times and allows you to identify optimal price points that balance volume preservation with margin requirements.
The most advanced retailers are using AI-powered pricing systems that continuously learn from market responses, allowing them to stay ahead of shifting consumer behavior and competitive dynamics. These systems can precisely calibrate price changes across thousands of SKUs, accounting for complex relationships between product categories, competitive positioning, and channel-specific dynamics.
In a tariff-impacted marketplace, reactive pricing isn’t enough. Success requires proactive strategies built on data analysis, customer insights, and technological capabilities. By approaching these challenges systematically, you can transform market disruption into competitive advantage.
If you’re interested in chatting more about pricing optimization and how tariffs might impact your business, please feel free to reach out. I love hearing about the real issues that retailers are facing and am happy to share my experience.
