Putting your prices up – is it the right answer?
Putting up prices seems to be a common theme at present. I am sure as individuals, and as business owners, you are all feeling the pinch, so I pose the question, is putting up prices the right answer, or is there more we could be doing?
The advantages of raising your prices
Here are some of the key reasons why you may consider raising your prices:
You might currently be under pricing your products and/or services, when compared to what customers are happy and willing to pay, and therefore have missed revenue.
Often prices are put up in order to absorb additional costs a business is facing and will mean that your bottom-line won’t drop (proportionately). In other words, by putting your prices up, you can effectively maintain the same profit as you did before.
Higher prices can be indicative of value. Psychologically, we automatically think that a $400 pair of shoes is worth 10 times more than a $40 pair of shoes (even though this is usually not the case). By having higher prices, compared to your competitors, it may lead people to see your products and/or services in a different way.
It might shift your customer base. If you change your pricing, it might just mean you attract a new target market.
The potential disadvantages of raising your prices
Before you just follow suit and start raising your prices, we think you should consider -
You may lose customers who are priced out of the market – e.g. those who can no longer afford your product/service.
It continues the flow-on effect whereby, in turn, the next person has to raise their prices – adding to inflationary pressure in the economy.
Typically, when prices increase, buyers will be able to purchase less, and your overall income might decrease as a consequence.
Simply putting your prices up, therefore, may or may not be the right answer and should be considered carefully.
Whether a business decides to raise its prices, I would also recommend they:
Address productivity – New Zealand has a low level of productivity, and by increasing productivity, you should be able to have a greater output for the same input.
Address innovation – What new technologies might your business be able to implement to make it more streamlined and efficient?
Look at your supply chain – Is there a better way you could be purchasing your goods? Are there better or new suppliers in the market? Can you negotiate better terms with your current supplier?
Minimise your business overheads – although costs are harder to control, there may be some room for improvement in this area.
We hope this blog has given you some food for thought!