Here’s why you should carefully consider whether now is the right time to increase your prices in response to the current economic climate. Remember our business advisors are here to support you make the decisions that are right for the future of your business.
Many of you will have read Hallidays Growth Through Pricing White Paper, and some will already have implemented its advice. But for those who haven’t, this blog might increase your sense of urgency.
The time to increase your prices, if you haven’t already done so, may be right now. And you could need to do this several times over the coming months.
I totally understand that you don’t want to make waves in your customer relationships, but I would counter that with the thought that stormier waters are coming, and those that stay afloat will be the ones riding higher in the water.
I can feel your cursor hovering over the ‘X’ at the top of the page, but stay your hand for one more minute.
The perfect storm of Brexit aftershocks, a nation collectively suffering from economic long Covid, and the conflict in Ukraine affecting the world’s supply lines are building up inflationary pressure.
The average rate jumped in December 2021 to 5.6% – its highest since the “Lawson Boom” of the late 1980s, when rising house prices, tax cuts and lower interest rates led to the growth of shoulder pads and high consumer confidence, and inflation touched 9%. In the previous decade, inflation levels of over 20% were fuelled, in a spectre of today’s crisis, by oil. At the time of writing, the rate stands at 5.5% and is forecast to hit 8% in April.
In times like these, you only have to stand still to end up in a race to the bottom.
When sales are easier to come by, it’s comforting to prioritise volume over value – sales over margin. As a result, a lot of companies set prices too low because they’re seduced by the unit sales chart and ignoring the profit chart on the next slide.
And I get that it’s time-consuming and challenging to handle the structural changes, resistance from sales staff, updates to your marketing and customers’ objections. You may also be thinking of the Bigger Picture – the press slamming companies for “profiteering”, inciting wage demands and contributing to a rising spiral of inflation.
But in times like these, standing still could be a race to the bottom. The economist George Akerlof won a Nobel prize for his work on what happens when prices get ‘sticky’. His point was that in a market where consumers are 1) ignorant of the value they’re receiving and 2) have a fixed idea of the price they’ll pay, companies producing goods or services worth more than that price are forced out of the market. The only products that will sell at a profit are those that can be made for less than that arbitrary price. So, the result is “a Lemon Market”- the bad drives out the good. Which means, if you’re not looking at pricing right now, you’re helping to create that classic Lemon Market.
So how do you get around this? How do you squeeze more out of those lemons?
A finger of fudge is not enough.
As always, communication is the key. Don’t fudge it. Don’t bury a price hike by simply short-changing the customer – selling smaller pizzas or chocolate bars for the same price – and don’t hide it in small-print price lists or obscure them in management speak.
Instead, be frank and forthright about why prices have to go up. Give them a concise, candid explanation that makes clear why the value they expect from you cannot possibly be sustained at the price they are now paying.
That value is why your customers are with you in the first place. Reassure them they’re still making the right decision.
Then give it to them straight when, and by how much, the increase will occur, well ahead of time.
That’s the easy bit. The hard bit is knowing not just how much to raise prices by, but also how to raise them.
How Hallidays can help
Our white paper Growth Through Pricing White Paper shares with you the 7 step-process and to price your products and services.
Our business advisors also offer support with reviewing your pricing. If you would like to learn more, please contact our team on 0161 476 8276 or email [email protected].