I often get asked about how best to go about raising prices. It’s a very touchy subject that many businesses find hard to tackle, wondering whether it’s better to have gradual, incremental increases or one large price hike.
One of the biggest mistakes I have made is not acting quickly enough to increase prices when needed. Pricing is critically important.
In our business, we do a three-month review on prices. If our costs have increased, we put our prices up. We do try to keep our price rises to just twice a year, but if our cost on a product rises so much that it’s too large to absorb, we do it straightaway.
If you do it gradually, some of your customers will get annoyed. They feel that you’re forever putting up your prices. Do it in one big go: it’s forgotten in a week and life goes on. We also have found if we do one large price hike, it’s a lot less work for everyone, eg programming the cash registers and changing the points of sale. Do it once and it’s done.
We always explain our price rises to our staff first. If there have been articles in the newspaper about costs going up, we cut them out and put them up in the staff room. We do this to help staff explain to our customers why the price has increased.
But I have to tell you, most of the time the customer isn’t even aware the price has gone up. Price setting is a balancing act: the retailer wants to make a decent profit, while the customer wants value for money.
You can’t afford to be slack about increasing your prices. Diarise all of your price changes so that you keep on top of it all. Otherwise you will go broke … either gradually or quickly.
At the end of the day, people will come to you because of the perceived value of your products. It’s what you give them for their money that counts in the long run.