Prices have to be raised from time to time. Sometimes you raise them due to supply and demand, like shortages caused by conflict in a region where goods originate or supply chain disruptions like those that took hold after the Covid pandemic and resulted in bottlenecks. Other times, it’s because of an increase in the price of oil affecting transportation, or higher wages for employees. Or it may just be keeping up with the rising cost of living.
Whatever the reason for raising prices, they’re never popular and could result in sales falling off for a while. This is why it’s important to judge the right time to charge more and to introduce those price hikes in a way that will create the least amount of backlash. That’s what we’re going to explore here.
5 tips to follow when contemplating a price increase
1. Do your research.
While decisions about when and how much to raise prices are the province of an owner or manager, before they’re put in place, it’s a good idea to get input from employees, look at sales data, and research the competition.
Sales staff get the customer feedback that lets them know how well products are being received, and they will also be aware of customers’ reactions to other price increases.
As useful as this information is, however, there’s no getting around the importance of empirical figures, data that a centralized order management system gives you. A good software like Cin7 Core tracks and stores everything about the sales a company makes, including customers’ buying history, and can configure it in ways that show emerging patterns—patterns that can be used to determine if raising prices is a good idea.
You should also take a look around to see what the competition is doing. In a comparison, are the products being considered for a price hike better than theirs or the same? How likely are you to lose sales if you raise your price?
If you do decide to charge more, let your staff know ahead of time. Keep them in the loop.
2. Sweeten the deal.
If you’re thinking about asking more for your products, consider softening the blow to your customers by throwing in something extra. Bundling is a good way to do this, basically putting a couple of similar items together for a good price. If you sell electronics, for instance, you could bundle a new expensive laptop with lesser-priced items like a mouse, headphones, and a carrying case. You would get the higher payment for your main item, but your customers will feel they’re getting value for their money — a win-win. Before putting a strategy like this into operation, do your research. Use your sales data to identify those products your clientele will likely pay more for, then find complementary items to pair them with.
If you don’t want to bundle, consider offering complimentary services like gift wrapping or after-sales care. These should be offered with some forethought, however. They cost money, and you don’t want them to eat into the money you’re raising by increasing prices.
3. Time it right.
Timing, as they say, is everything, even when it comes to hiking prices. The state of the market may be a big determining factor, but price increases will go down better with shoppers if a company and its products have a solid reputation. In other words, wait until your company has a strong foothold in the market. After that, you’ll be able to raise prices periodically, but don’t go crazy. You don’t want to price yourself out of the market.
High-volume sale periods when shoppers are in a buying mood are also good times to charge more. Similarly, those offering seasonal items like winter or summer clothing or ski equipment can almost certainly raise their prices at the beginning of each season without it being noticed much.
4. Communicate and be transparent.
If you are going to raise your prices at times other than those mentioned in the previous section, don’t try to sneak them in under the radar. Use your social media, send out emails, or do both to let your customers know your intentions ahead of time.
If you’re asking more for your products because your operating costs have increased, tell them. Or if you’re raising the price on an item because it’s costing you more, inform them how upgrades and improvements make the item more useful. Explain how the extra revenue is needed to help you grow your business and be able to offer better products and service.
Actions like this not only prevent your customer base from having a knee-jerk reaction and going elsewhere, they will reinforce trust in your company.
5. Monitor the effects of your price hikes.
After raising prices, track how well those items are selling and check to see if charging more has translated into greater profits. A sophisticated tool like Cin7 Core can be a great asset here, letting you follow the numbers on a single screen. You should also get feedback directly from your customers by asking them to fill out surveys, or by inviting them to contact you through your social media.
When you have a complete picture of the effects your price hikes have had, you can use the information as a springboard for pricing policies going forward, planning that will drive future sales and should lead to greater profits.
Price increases go hand in hand with growing economies and are part and parcel of doing business. A wise businessperson employs thought and planning before enacting them, and takes the market and the customer base into consideration ahead of time.
Data, like everything, is an essential part of this delicate footwork, and there’s no better way of getting the best there is than with Cin7 Core. To learn more about the software, schedule time with one of our experts.