With new tariffs introduced by the US, retailers worldwide are feeling the pressure. The questions are clear: Should prices be increased? Should margins take the hit? Is it time to explore new markets or even move production to the US?
Since the start of the year, tariffs have become one of the most talked-about topics in retail. For sellers across the EU, this moment calls for careful action. Raising prices across the board may seem like the most direct solution, but that approach can be risky and push customers away. Let’s walk through a few smarter ways to manage cost pressure while staying competitive.
Rethinking margins using elasticity-led pricing
Not every product should carry the same increase. Some categories are more resilient to price changes than others. Instead of raising prices over the entire product catalogue, retailers should consider an elasticity-based approach to identify which products can handle cost increases without affecting sales.
Products with low price sensitivity (often premium or luxury products) can generally handle price increases better because their customers value them for reasons beyond price, such as quality or brand appeal. These items can absorb slight price increases without causing a significant drop in sales.
On the other hand, products with high price sensitivity (usually basic, everyday goods) are more affected by price changes. For these, raising prices too much could drive consumers to look for alternatives. Therefore, these products may need to either remain stable in price or only be slightly adjusted.
Determining the right balance between absorbing new tariffs and raising prices requires careful consideration of both customer behavior and the competitive landscape. A useful approach is to first experiment with smaller incremental price adjustments on premium products while keeping price-sensitive products stable or slightly adjusting their prices. Jumping straight into a big price hike to cover the tariff could scare off customers, so it’s better to ease into it and watch how the market reacts. This way, you won’t risk losing customers by making them feel like the value isn’t there anymore.
Pricing software makes this process much easier. With built-in insights, it can quickly identify which products are elastic and which are not, helping merchants take action with confidence. In addition, sellers can track these differences in real time and adjust accordingly. This allows margin changes to reflect demand patterns and cost movements, including tariffs, with more accuracy.
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Using differentiation and smart discounts to create flexibility
Elasticity-based pricing isn’t just a standalone tactic, it’s what powers strategies like tiered pricing and product differentiation. Once you understand how different customer segments respond to price changes, you can build pricing models that speak directly to their willingness to pay.
One strategy is to implement tiered pricing based on different product versions or service levels. This helps to soften the impact of the tariff by offering a range of prices for different levels of goods or services. The tariff cost can be absorbed into premium offerings, while lower-end products or services can remain affordable. Let’s take, for example, phone cases. A basic plastic case might remain at the same price, while a “premium” version could include additional features like extra protection or design customizations. By adding a premium option and adjusting its price slightly, the retailer can help absorb the additional costs from tariffs without alienating customers looking for the more affordable option.
Product differentiation can also be a valuable tool. Rather than increasing the price of a single product, retailers can offer variations that justify a higher price tag. For example, a retailer could offer different packaging or exclusive features (like limited editions) that justify the higher cost. This differentiation strategy can help absorb the tariff cost while maintaining competitive pricing for the core product.
Bundling is another effective tactic. Pairing a tariff-affected product with a higher-margin one creates an attractive overall offer, helping to spread the cost across multiple items.
Finally, short-term promotions and limited-time discounts can also help maintain demand during cost increases. While price increases may be necessary, offering special deals at the right time can create urgency and draw more customers in. A limited-time discount on specific products can make some retailers more appealing compared to competitors, especially if the offers are seen as valuable. This can help maintain demand, or even boost it. Customers may be more willing to purchase when they feel they are getting a good deal. In this way, rather than simply mitigating the effects of tariff costs, strategic discounts and promotions can help position the retailer as a go-to option for value during uncertain times.
With help from AI and pricing tools, sellers can identify the right segments and timing to apply these tactics in a way that protects margins while encouraging conversion.
Closely monitoring competitor actions
With online prices just a click away, knowing how competitors are reacting to tariffs is no longer optional. Tracking competitor pricing across key categories can reveal who is taking the lead on adjustments and who is holding back. That visibility matters, especially when price positioning plays such a big role in consumer choice.
Some brands may choose to keep prices steady and take a margin hit in order to maintain their customer base. Others may pass on part of the cost while focusing their value message elsewhere. Knowing how the rest of the market is moving can help inform the best path forward.
Real-time insights into competitor actions allow merchants to stay agile and make adjustments as necessary. With the help of pricing software, merchants can respond quickly. Tools that provide real-time price tracking and automated recommendations make it easier to stay in step with market changes without falling behind.
However, it’s important not to get caught in a race to the bottom, where cutting prices too aggressively harms profitability and brand perception. Retailers should consider also focusing on non-price factors such as superior service or unique product offerings to differentiate from competitors.
Staying agile in a rocky landscape
There is no one-size-fits-all answer to managing tariff pressure. But there are ways to move smartly. Whether through elasticity-led pricing, strategic discounting, or better visibility into competitor moves, EU sellers can adapt without leaning entirely on price increases.
Staying flexible and responsive will be essential in the months ahead. Merchants that use pricing strategically, and not just reactively, will be better placed to maintain customer trust while protecting long-term profitability.
