Tariffs create a pricing dilemma that most teams underestimate: the same cost shock can be inflationary and demand-destructive at the same time, depending on product substitutability, customer concentration, and channel dynamics. In a 2025 survey of 100 companies, 82% reported their supply chains were affected by new tariffs; 39% saw higher supplier/material costs and 30% reported demand reductions. Yet the weighted average pass-through was only 45%, suggesting most firms are absorbing or mitigating a meaningful share rather than fully passing it on.
Meanwhile, expectations are moving fast. A multi-wave survey of US SMB decision-makers (Dec 2024–Aug 2025) shows tariff expectations rose (roughly 19% → 25% early 2025), and actual tariff rates paid nearly doubled from 6.5% (Jan 2025) to 11.4% (Jul 2025). Crucially, planned pass-through increased as firms started believing tariffs would persist longer.
That’s why pricing cannot be a one-off “increase list by X%.” Winning in a tariff environment requires a repeatable pricing capability built on three moves.
Move 1: Build a granular “tariff exposure map” (so pricing is fact-based, not emotional)
Start by turning tariffs into a commercially usable cost model, not a finance estimate.
What best-practice teams quantify:
- Exposure at the right grain: SKU/part × lane × incoterms × plant/DC × customer segment
- Cost waterfall: tariff impact vs FX vs freight vs supplier increases vs internal absorption
- Scenario set: optimistic/base/adverse and “duration” scenarios (because persistence changes behavior)
- Competitive vulnerability: where you’re uniquely exposed vs where the whole category is hit
Then separate what pricing must solve from what operations can mitigate. In the same supply-chain survey, common non-pricing countermeasures included inventory builds (45%), dual sourcing (39%), and near/reshoring plans (33%) – meaning pricing should be designed alongside mitigation, not after it.
Output (board-usable): a heatmap that flags “must-pass” categories, “manage-through” categories, and “strategic opportunity” categories.
Move 2: Set the pricing strategy using elasticity logic (not average pass-through targets)
The mistake: setting a blanket pass-through goal (“recover 70% of cost”).
The discipline: deciding where and how you can pass through, grounded in demand dynamics.
Economic research is clear that cost pass-through varies widely and is strongly influenced by relative elasticities – when demand is more price-sensitive relative to supply, pass-through tends to be lower; when customers are less price-sensitive, more of the shock can be carried in price.
A practical way to translate that into strategy
Classify each product/customer pocket into one of three postures:
1) Margin defense (pass-through is realistic). Typical signals: differentiation, switching costs, regulatory/spec constraints, “must-have” spend. Primary moves: list price resets, targeted increases, contract re-pricing.
2) Volume defense (pass-through will trigger substitution). Typical signals: commoditization, aggressive competitors, discretionary demand. Primary moves: selective pass-through + mix management (good/better/best), pack-price architecture changes, targeted concessions tied to commitments.
3) Share capture (competitors are constrained). Typical signals: competitor stockouts, concentrated tariff exposure in rivals, supply advantage. Primary moves: hold price to gain share, or increase price more slowly while expanding penetration.
One more insight: volatility changes how pricing should be run
In high-inflation periods, firm survey evidence shows many organizations shift from calendar-based pricing to event-driven (“state-dependent”) pricing – with around 60% reporting they adjust prices in response to events rather than fixed intervals. Tariffs are exactly the kind of shock that rewards event-triggered governance.
Output: a pricing “North Star” that defines posture by category and sets boundaries (where to push, where to protect).
Move 3: Execute with a segmented playbook and tight governance (where most value leaks)
Strategy fails when execution is generic. The winners standardize a tariff pricing playbook with clear decision rights and measurement.
A) Choose the right price mechanics
- List price reset (best for structural, persistent cost changes)
- Surcharge/line item (useful for transparency, but risks customer pushback and future unwind complexity)
- Contract indexation / tariff clauses (reduces renegotiation cycles when volatility persists)
B) Segment customers by negotiation reality
- strategic/key accounts vs long-tail
- contract vs spot
- channel partner vs direct
- regions with different competitive sets
Then tailor:
- timing (immediate vs phased)
- message (cost transparency vs value framing)
- give-get (price concessions only in exchange for volume, mix, term extension, or service-level changes)
C) Manage the “price realization engine”
Most companies lose 30–60% of the intended increase through discounts, rebates, overrides, and deal-by-deal exceptions. Fixes typically include:
- tighter approval thresholds
- standardized exception rationale
- “guardrails” on max giveback by segment
- frontline enablement (talk tracks + calculators)
D) Run a tariff pricing control tower
A weekly cadence that tracks:
- achieved pass-through vs plan (by category/segment)
- volume and churn signals (early warning)
- competitor moves (where feasible)
- margin bridge (price vs mix vs cost vs leakage)
This matters because survey evidence suggests many firms won’t pass through fully (average ~45%), which makes leakage control and targeting precision disproportionately important.
The capability point: pricing wins when it becomes a system
Tariffs don’t just test pricing levels; they test whether a company can run pricing as a management system: exposure intelligence → strategic posture → segmented execution → governance and learning loops.
