What Product Managers Need To Do To Prepare For Inflation

by drjim on September 10, 2012

Prices will be going up, is your product going to be ready?

Prices will be going up, is your product going to be ready?

Just how old are you? If you’re not at least in your 40’s then the concept of inflation is probably something that you may have read about in some long forgotten economics class, but it’s not something that you’ve ever had to live with. Guess what – there’s a good chance that we’re getting ready to be hit by a wave of economic inflation. Despite the fact that you never planned for this in your product development definition, is your product going to be ready for it?

Just Exactly What Is Inflation?

So we’ve all heard about inflation at one time or another, but just exactly what is it? Inflation is when the general level of prices for goods and services goes up. In the world that we all live in these days, there is an annual inflation rate of between 2%-3%. What that means is that something that would have cost your $100 last year, may cost you $103 to buy this year.

The really smart people who watch the global economy are telling us that we’re getting ready to enter an era of inflation. What this comes down to is that the annual inflation rate will increase to something like 6%-7%. Once again, that $100 purchase last year will now cost you $107 this year. Just image if you were going to buy something that was really expensive!

The signs that the experts may be correct are all around us. We’re currently seeing rising food and commodity prices and this can easily lead to a higher overall inflation rate. For product managers what this means is that it’s going to become more expensive to produce your products and services and so you’re going to end up having to boost your prices. How will your customers react?

How Can You Prepare Your Product For An Era Of Inflation?

As a product manager, if you know something bad is coming your way, you’ve got a responsibility to prepare for it – this is the kind of skill that you’d like to be able to brag about on your product manager resume. When it comes to preparing your product for a period of high inflation, it turns out that there are three different steps that you can take.

The first thing that you can do is to pre-purchase any hard assets that you’ll need to create your product or service. The motivation for doing this is that the “real” things that you’ll be buying will retain their value even after we enter into an era of higher inflation.

Every product has one or more suppliers that provide the parts that you need in order to create the complete product that you sell to your customers. When the era of higher inflation hits, these suppliers will be raising their prices to you. Since you now know that this will be happening, you’re going to want to “lock in” those suppliers at today’s prices for as long as you can. Renegotiate your contracts with them and try to get price commitments for the next 10 years so that you can ride out the era of inflation.

Finally, there’s no way around this one: you’re going to have to raise your prices to your customers. The trick here is by how much? Over time there is a good chance that you’re going to end up raising your prices by a great deal just to keep up with inflation. Minimize the amount of pain that your customers are going to perceive by raising your prices now. This will mean that future price increases will be smaller jumps and will be less painful to your customers.

What All Of This Means For You

As tough as it is to be a product manager on a day-to-day basis (see your product manager job description), it turns out that we also have to be keeping our eyes open to see what’s coming down the road. The smart people who keep an eye on the global economy are telling us that there is a good chance that we may be getting ready to enter a period of high inflation.

If this is true, then as a product manager you need to start to take steps to protect your product. Buying the hard goods that you need in order to create your product now is a good way to start. Taking the time to negotiate extensions to your supplier contracts now, before prices go up, would also be a good idea. Finally, raising the price of your product now means that you’ll only have to raise it by a smaller amount later on – your customers may find this easier to swallow.

I don’t have a crystal ball and so I can’t predict the future with 100% accuracy. However, the folks who are making the predictions about looming inflation are pretty smart and it would behoove you to listen and start to prepare your product. If you are ready when the inflation storm arrives, then your product should be able to still be successful no matter what happens.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: What would be the best way to get your management’s support for taking action now to prepare for inflation?

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What We’ll Be Talking About Next Time

Have you ever started something with the best of intentions only to have it go terribly wrong? As product managers, this can happen to us if we don’t keep our eyes open to what’s going on in the world around us. Over at Pipeline Trading Systems (now known as Aritas Securities) the product managers let things get out of hand and it came back and bit them, hard.

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