Inflation poses a major strategic dilemma: should we transfer the increase in costs to customers (pricing power) to preserve the margin in the short term, or absorb part of the costs to protect market share in the long term? The sources analyze this conflict between “customers and shareholders” through historical examples, notably the “Marlboro Friday” of April 2, 1993.

At that time, Philip Morris, faced with a decline in consumer purchasing power and competition from “discount” cigarettes, made the radical choice to lower the price of its Marlboro packs by 20%. The immediate punishment of the financial markets was brutal: the stock price fell by 26% in one day, as investors favoured immediate profitability and perceived this price drop as a destruction of value.

However, Philip Morris’ reasoning was based on the long-term value of the business. The company bet that customers lost to high prices would never return, even after the crisis. By lowering prices, it has sacrificed its short-term margin to win back its customer base (“market share“). 18 months later, the strategy paid off: Marlboro had regained its market share and the share price had returned to its initial level.

On the other hand, the recent example of Unilever (2022-2023) shows the dangers of the opposite strategy. By increasing its prices by more than 13% to compensate for inflation, the company saw its volumes drop significantly, which ended up worrying the financial markets (“investors are no longer happy to see price increases accompanied by volume decreases”).

The conclusion drawn is that customer satisfaction and loyalty are the real drivers of sustainability and long-term value creation. Using the power of the brand solely to extract surplus from the consumer in times of inflation (like a “zero-sum game”) can destroy the value of the intangible asset that is the brand. Corporate finance must not lose sight of the fact that, in the words of a real estate investor, “the IRR of a project is called a tenant” (or a client).