Should I put my prices up, or down, or neither? Top tips and tricks for managing prices in the current climate.
Last month my telco provider wrote to me.
Kia ora Fiona. We want to let you know about some upcoming changes to your plan. From 28 October 2020, the monthly cost of your plan will increase from $19.99 to $24.99 per month.
Outrageous I thought. Who puts their prices up at a time like this?
But Right Now Might Just Be The Right Time To Put Prices Up.
As a business owner do you feel caught between the need to increase price (for profit and/or financial survival) and not wanting to impose extra costs on customers at this time (knowing many customers are facing hard times right now)?
So is now the right time to put prices up (or down) or not?
There Are Two Things You Need to Remember About Pricing and Profitability
# Profitability = Price x Volume
There are two parts to the equation. How much you sell (volume) and the amount you sell it at (price).
In general, most companies under charge. They are scared to raise prices, as they think it will lose them sales or drive customers away. But you need to consider price elasticity first. Or test price elasticity. 8 x sales at $ 10 is often better than 10 x sales at $ 8. Same revenue. But 8 x sales = more profit at a lower cost of delivery and customer service. And if you can have 9 sales at $10 you are better off.
# You Want to Grow Your Business
Growing your business can come from
1. acquiring new customers, or
2. improving the lifetime value of existing customers.
There is no right or wrong answer, but it is often easier and cheaper to get more value out of an existing customer than it is to acquire a new customer. You need to be clear about your business strategy and your pricing strategy.
The good news?
With a little thinking and analysis there are lots of ways you can tackle pricing and profitability.
Top Tips you can try within the next 30 days (or less) around pricing strategy:
# Understand Your Customers
This recession is very mixed. Some businesses are rushed off their feet and others are struggling to survive.
Know your customers and their business or personal world. Can they withstand a price increase? If they are thriving what more can you do to sell to them or how can you increase value.
How can you test price elasticity with some customers or products/services?
# Understand Market Pricing
How easy is it to price shop your company, or a product or service of your type?
Buyers decide on price by default – they are not “trained” in how to choose products or services using other measures. They choose on price as that is all they know.
Understand where your product sits in the market in terms of price, quality, benefits, and service. Be able to talk about all aspects with your customers and not just price.
Stop and look at the formula you use for pricing. Is the formula right for today’s world? Does everyone understand the way your company prices products? What input costs have increased that impact your pricing?
# Have A Strategy
Be strategic about price. As the well-known, world class marketer Perry Marshall said in his 2013 article on starting a business:
Your pricing strategy is the most critical aspect of marketing. Why? Because you can have the best customer list in the world and the best sales pitch in the world, but if your pricing strategy is lousy, you’ll still go broke.
Use special offers to attract new customers (who will spend more with you over the long term). Or to say “thank you” to loyal, long-term customers.
But don’t make a habit of it. And don’t use it to close sales, customers will start to expect it every time.
Change targeting – focus on customers in higher income bands. Which leads on to the question “who has money right now”? We have all seen the news that boat sales are going up. The people who can’t take overseas holidays are spending money on other luxuries. So, who are your high value customers or potential customers?
Look at how you can increase the value of what you sell – bonuses, extras, longer guarantees – rather than price reductions. Consider offering payment terms, either with price increases or before you lower a price.
# Contract Price Increases
Does your customer contract have a standard price increase clause?
If yes, why not enact that. Often it is something like “2% or Consumer Price Index, whichever is higher”. They are there to help you cover inflation.
If no, why not start adding these to your terms and conditions or contracts.
Consider what costs have increased and why these need to be passed onto your customers – it will help explain why you are enacting a contracted price increase.
If you are having to reduce prices for a customer can you lock them into longer contract terms, with built in price increases for future years?
# Size of Product or Service
How easy is it to change the size of your product or service? It’s an old trick but still one that works. Just think of the time your café reduced the size of the takeaway coffee cups. Can you change the size of the product/service offering but keep the price the same?
Can you remove elements no longer needed such as packaging, or go with cheaper alternatives?
Is it worth phasing out a low-priced product/service, while offering your customers a better and higher priced product/service? That was the approach my telco was taking when they wrote to me.
Now might be a good time to think about offering products or services in bulk. The more you buy the better the price.
Can you increase the price of shipping, spare parts or other add on services? Or could you reduce some of these prices or add them in for free?
Looking For Some Help?
Feeling anxious or nervous about price changes is normal. Whether now is the right time to put prices up (or down) will depend very much on your business and industry sector.
For more suggestions about your pricing – or for help with other business challenges – contact Fiona Harnett at MacGregor Jamee to arrange a needs assessment.
MacGregor Jamee helps SME owners increase revenue, reduce costs, and improve operational efficiency.
We do this by providing them with the sort of high calibre chief financial officer, business mentoring, leadership coaching and business consultancy services often only available to large corporates.
To arrange your free assessment contact Fiona Harnett on
09 5255735 or email@example.com.
Or visit https:macgregorjamee.co.nz