In 2025, uncertainty has become the only certainty. Nowhere is this more evident than in the realm of international trade, where tariff volatility has emerged as a persistent challenge for businesses across the supply chain. With President Trump's continued use of import duties as a policy tool, companies—particularly those in B2B industrial and automotive markets—face unprecedented pressure to reconsider their pricing strategies.

The New Reality: Pricing in an Era of Tariff Volatility

The traditional debate between value-based and cost-based pricing is no longer merely academic. It's playing out in real-time as businesses grapple with sudden cost surges that have little to do with the intrinsic value of their products. Consider the automotive industry, where a 25% tariff on steel and aluminium imports can increase the cost of manufacturing a vehicle by as much as $1,500—without adding any additional value for the customer.

This situation creates a fundamental challenge: How do you maintain fair, profitable pricing when external costs spike unpredictably?

Understanding the Pricing Paradigm Clash

Before diving into solutions, it's essential to understand the two fundamental pricing approaches that most businesses employ:

• Cost-Based Pricing (Cost-Plus): A straightforward method where price is determined by adding a fixed markup to the cost of production. If a widget costs $2.50 to manufacture and you use a 50% markup, the selling price would be $3.75. This approach ensures costs are covered but doesn't account for market value or customer perception.

• Value-Based Pricing: A strategy of setting prices primarily according to the perceived value to the customer, rather than production costs. This customer-focused approach typically yields higher margins because it captures the "willingness to pay" factor.

In theory, tariffs shouldn't matter under a strict value-based pricing model—they don't change the value a product delivers to customers. Yet, in practice, ignoring these cost surges would devastate profit margins. This is where the clash occurs: external cost factors force businesses to introduce price increases that are essentially cost-driven (the hallmark of cost-based pricing), potentially undermining their value proposition to customers.

The Tariff Challenge: Not a One-Time Event

What makes this situation particularly difficult is that tariff volatility isn't likely to subside anytime soon. Early 2025 has already brought a flurry of tariff news, with President Trump indicating plans for new tariffs on imported automobiles, semiconductors, and pharmaceuticals—potentially at rates as high as 25%.

Beyond specific industries, the administration has threatened hefty import taxes on goods from Canada, Mexico, and China, effectively reigniting trade tensions on multiple fronts. One analyst bluntly described this as "self-inflicted uncertainty," noting that these tariff threats have engulfed U.S. business planning in a cloud of risk.

For business leaders, this means pricing strategies need to be adaptable. You can no longer assume stable input costs or a predictable annual inflation rate for materials. Instead, you might face a 5% cost increase one month, 0% the next, then 25% after a policy announcement. It's a pricing manager's nightmare—unless you're prepared.

Surcharges: A Strategic Buffer for Volatility

To navigate this conflict between maintaining a value-based stance and reacting to cost spikes, many companies are turning to surcharges as a solution. Unlike a built-in price increase, a surcharge is typically listed separately on quotes or invoices, making it very clear what it's for.

Benefits of the Surcharge Approach

1. Transparency with Customers: Surcharges provide a clear breakdown of price components. Customers can see that the base price remains consistent with normal value assumptions, while the additional cost is explicitly attributed to external factors.

2. Flexibility and Temporariness: A surcharge can be added or removed as conditions change. If tariffs are lifted, the surcharge can be dropped, bringing the price back down without having to renegotiate the base price.

3. Preservation of Value-Based Pricing: By keeping the base price separate, you preserve your original value-based price for the product's normal state. This prevents the core price from fluctuating with every cost change.

4. Financial Health and Predictability: From a cash flow perspective, surcharges help ensure you're not sacrificing margin. They enable direct cost recovery without disrupting your fundamental pricing architecture.

Implementing Effective Surcharge Mechanisms

If surcharges are your preferred route, choosing the right mechanism is critical:

• Line-Item Surcharge: Each product has a separate surcharge line item. This is the most transparent approach but can be complex for ERP systems to manage.

• Consolidated Line Surcharge: A single surcharge line for all products. This might be easier to administer for ad-hoc business but still requires enhanced ERP capabilities.

• Memo Item Surcharge: Included within product costs but displayed separately as a memo. This option balances transparency with simplicity.

• Retrospective Reporting: No invoice breakdown, but a retrospective statement is issued to customers. This is simpler to implement but requires additional reporting efforts.

Your choice will depend on your system capabilities and those of your customers. Ideally, support all options with a published surcharges schedule, listing the charges by SKU or unit of measure.

Beyond Surcharges: Preparing for Long-Term Volatility

While surcharges offer an immediate solution, businesses should take a comprehensive approach to pricing in uncertain times:

1. Assess Your Exposure

Start by understanding how tariffs affect your cost structure. Which raw materials or components do you source globally? Which suppliers or countries are subject to current or potential tariffs? Create a map of products with high exposure to import duties. This will highlight where you may need special pricing measures.

2. Re-evaluate Pricing Segmentation

With exposure in mind, decide if your current pricing model is optimal. Consider incorporating more value-based principles for your core products to unlock margin that can buffer cost swings. You might differentiate your approach by segment: perhaps using value-based pricing with surcharges for high-value products, while leaning towards formulaic pricing that adjusts with cost indices for more commoditized items.

3. Develop a Tariff Response Plan

Don't wait for the next tariff announcement—brainstorm scenarios in advance. "If a 10% tariff on X happens, we will do Y." A playbook of scenarios by product and customer can make your response faster and more consistent. This could vary by customer segment: for key strategic accounts, you might absorb small tariffs to maintain goodwill, while passing on full costs to smaller accounts.

4. Strengthen Communication and Transparency

Any pricing change must be accompanied by careful communication. Internally, align all stakeholders on the "why" of the pricing actions. Externally, be proactive with important customers: if you foresee potential surcharges or adjustments, give them a heads-up. Explain that these moves are defensive measures to ensure continued reliable delivery of your products.

5. Monitor and Adapt Continuously

Set up a regular cadence for a pricing committee to review new developments: tariff announcements, shifts in commodity prices, competitors' moves, etc. This group can decide if an adjustment is needed or if the current strategy holds. Being vigilant and agile will ensure you're not caught off guard.

Making the Case for Change

Ensuring top leadership is bought in on these pricing strategy adjustments is crucial. Sometimes there's resistance to change—a sales VP might worry that adding surcharges will upset customers, or a CFO might prefer the simplicity of cost-plus across the board.

Use data and scenarios to make the case. Show what happens to margins under the status quo versus with a new approach if a tariff hits. Highlight that many successful companies are adapting similarly in the face of uncertainty. The goal is to secure executive support so that when you have to execute the plan, the whole organization is aligned.

Fortune Favors the Prepared

In an era of trade wars and ever-shifting economic policies, B2B companies must evolve their pricing strategies to survive and thrive. The answer for many will be a hybrid approach: maintain a strong focus on customer value in your base pricing, but arm your business with flexible tools like surcharges to handle unpredictable cost surges transparently.

When one leader's decisions can swing your input costs by 25% or more, agility in pricing becomes just as important as agility in your supply chain. Now is the right time to revisit and update pricing models that were built for more stable times.

Above all, approach these changes with a mindset of partnership with your customers. By being transparent about costs, upfront about challenges, and proactive in strategy, you position your company as a reliable partner even in uncertain times. In fact, by managing pricing volatility effectively, you provide a form of value to your customers: the assurance that you have a plan to stay resilient when others might falter.

The road ahead will likely see continued twists—new tariffs, economic shifts, and policy changes. By strengthening your pricing strategy now with the help of Flintfox by Enable, you'll be far better prepared for whatever comes. The case for change is clear: persistent uncertainty isn't going away, so our approach to pricing must adapt. Companies that heed this call to action will be better equipped to weather the storm of volatility and come out ahead.

In pricing, fortune favors the prepared. Now is the time to get prepared.