Insights

ADJUSTING YOUR PRICING IS NEVER EASY.

Here is some advice for how to handle it in the current market.

It is hard to look over the fact that our current economy is riddled with inflation. Many experts say a little inflation is a sign of a healthy economy. The Federal Reserve aims to keep the inflation rate at around 2%. But from October 2020 to October 2021, the Consumer Price Index rose 6.2% – the fastest in more than 30 years.

Question 1: Why is there inflation in the economy?

Two major reasons for the current inflation in the economy are:

1. Economic recovery

When the economy starts to pick back up after a downturn (after COVID), prices tend to go up. Because people are more willing to spend when they have more money and corporations raise prices when people are buying more.

2. Supply chain disruptions

Producing goods is a process. And if it breaks down anywhere along the line, it can impact how much of a product is available to the public. That can happen when there’s an internal interruption, like a shortage of workers. Or an external interruption, like a major storm that prevents a company from being able to distribute its goods.

With inflation, most businesses raise prices to meet the demand and increase CPI. Thus, a business owner must strategically raise prices to keep customers happy while reinsuring business continuity.

Question 2: How should you go about raising prices?

There are simple steps that a business owner can follow to strategically raise prices. Raising prices can be a tricky situation, and the business owner must ensure that new and old customers are attracted to the business even when the prices rise.

Study what your competitors are doing: If everyone in your industry has been raising prices, customers will be more amenable to the change. If you're the only one doing it, however, you’ll need to offer something unique that your competitors don't.

Customer Disclosure: Retail or restaurant businesses can often raise prices without customers noticing. However, if you own a service business or B2B company, don't try to sneak a price increase into the bill after the fact. Let customers know in advance when you plan to raise your prices. This can actually be a good tactic for retaining customers

Explain your reasons: This does not mean you must disclose your profit margins or details on pricing to the customer. However,  you can simply share the basics as to why you are raising your prices, with a focus on the benefits to the customer.

Question 3: What steps should be made to implement price changes?

Finally, you must increase prices by carefully considering how you are raising prices. Selling goods and services is a nuanced activity, but selling them at a higher price than before is even more challenging. Here are some ways you can do so.

Introduce Fees: Instead of raising prices for your primary product or service, consider adding fees to cover rising costs. This works exceptionally well if one specific cost, such as raw materials or transportation, is rising.

Pricing in Stages: try raising prices for a small group of clients first to see how they react.  If most of them accept it, you can expand the increase to your entire customer base.

Adding Value Products: Create product or service bundles by adding features that don't hurt your profit margins, but make a big impression on the customer. This can be an added insurance or warranty for the product you sell.