Your Guide on Strategic Pricing and Market Forces
Today’s news is permeating with inflation and recession themes, with many articles citing how the rise in inflation means cutbacks in many households. What doesn’t get talked about enough, however, is the experience from the business’ end.
Inflation means businesses have to face cut-backs too— and a re-evaluation on their strategies and pricing approaches. Every business has watched how the prices of the inventory they need to buy, the space they need to rent, or the supply chain production they require has gone up. Approximately three-quarters of small business owners reported that they are experiencing rising supplies costs, according to a new CNBC/SurveyMonkey Small Business Survey.
So, the question we need to start asking businesses is whether they are adjusting their prices well to combat this inflation but not to the point of deterring customer loyalty. Are you underpricing or overpricing? Let’s look at some tips on combatting these inflationary times:
Identifying Potential Savings
The first step to managing inflation as a business is to immediately look at your cash flow. Work with a trusted financial advisor or CFO to see where the money is going, why and whether the output is worth that price. You just might find that there are areas you’re overspending or items you’re spending money on that you can put on hold for a bit. Whether it’s the clearing out a storage unit you’re paying for, spending less on certain company events or finding a new vendor that costs loss, you can identify potential savings in your existing strategies.
Keep Tabs on Competition
When the market leaves you in a position to increase your prices, you know your competitors are going through the same. Be sure to watch what new price they give their products or services and either match the same or if you are able to still price lower, do so. It could even give you a competitive edge.
Maximize the Value You Provide
Work with your financial consultant or CFO when adjusting pricing your products and services so that the new price if strategic and built off data. You do not want to just increase the price of each product or service the same way because the effect can be different. Your best-selling products, for example, can be priced higher than those that don’t sell so well. You can even for the time being remove certain products or services that, after inflation, bring in as much revenue as they actually cost to make or sell. Manage each service or product individually and perhaps consider bundling some of the services or products together so that customers can feel they are saving money by buying both together and you can adjust your profit margins for both, strategically. Bundling therefore helps mask the actual price customers are paying, as they focus on how much they are getting in just one payment. Considering creating product or service bundles by adding features that don’t hurt your profit margins, but make a big impression on the customer.
Avoid an “All at Once” Situation
Unfortunately, customers never appreciate a drastic increase in prices even when they’re required for a business to keep running. The best way to mitigate the shock is to start increasing the prices gradually. It would lessen the burn for a customer if they slowly start adjusting to the new price reality rather than all at once. Be sure to work with your CFO to plan out this phasing process accordingly.
Reward and Incentivize Loyal Customers
If you have to increase prices on certain items and you’re seeing customers feel the burn and turn to competition, it’s good to consider a reward program. The best reward, however, also incentivizes them to keep shopping. It could be giving them access to a new product that hasn’t officially been launched to anyone else. Or it could be offering them some new service that’s not open to the general public yet. Many tech companies, such as Google, offer consumers the opportunity to be part of a beta release of a product. Consider setting up a similar program where loyal customers can sign up to be the first to hear about new products and services. Work with your team to ensure your incentives don’t hurt the business but actually serve as a public relations and marketing tool that keeps your customers happy.
Communicate Clearly
Price increases is a conversation that’s never easy to have with customers. After all, who wants to hear that the product your business relies on is going to cost more? You should provide your customers with plenty of time to come to terms with the price increase. They may need to re-assess their budget or consider alternative options, so you should keep them in the loop once you’re made aware of the situation. Additionally, encourage them to make one or more product orders before the price increase kicks in. Remind them that higher prices mean better quality.To make it clear that you’re raising the prices to maintain the quality of the product, you should explain what caused the price increase. For instance, as some raw materials become increasingly scarce and expensive, companies that utilize these materials are forced to increase the prices for products that use them. Laying that out to customers will prove your willingness to be transparent.
Balance Beam Offers
The last solution we can offer today is to leverage discounts on one end while raising prices on another. Specifically, your business will work to assess which services or products are doing the best and producing the most revenue for your brand. Give your customers a promotion where they can buy those items on discount with any purchase of another item in the store. That other item they are asked to buy will actually be marked higher as per inflation and as per the discount. This solution also helps soften the blow of high prices and helps the customer focus on their favorite items being on sale.
Keeping All Strategies Both Professional and Effective
Pricing your products and services is a complex task and if done without strategy, could hurt your bottom line. Don’t hesitate to reach out to Norris CFO pricing experts today and start the conversation about how to better approach managing your cost increases, identifying common pricing mistakes and determining the right margins for profit that communicate your company’s value while increasing revenue.