Your knee-jerk reaction may be to raise your prices and not think twice about it during a period of inflation. However, simply performing a price hike could potentially damage customer relationships, depress sales, and hurt margins.
As mentioned in our article, “10 Smart Ways to Reduce Expenses During Inflation,” the Dine Brands company created a list of 140 ways to reduce costs and improve productivity, but they also increased their prices 5-8%.
While making changes to your business operations can help, sometimes it isn’t enough and you have to adjust pricing too. Changing the costs of your goods and services should be done appropriately and include research and testing.
Analyze Your Customers
Each one of your customers will react differently to a price increase and will likely be dependent on a number of factors, like how price sensitive they are and if inflation has massively affected the cost of the products they buy.
One way to adjust pricing without upsetting all your customers is to segment them and raise prices for certain customers while keeping costs low for others, perhaps more loyal and supportive. This can be done by offering special promotions or loyalty discounts to customers who have been buying from you for years. You can use a Customer Relationship Management (CRM) tool to analyze customer behavior and create different categories for releasing any new marketing materials or updates.
If this strategy isn’t sustainable for you and all prices need to change, you can develop ways to help your customers accept the new prices. Creating a team of customer support professionals or communications professionals who can relay these changes with care will go a long way in maintaining those key relationships. You can share information on why your prices are changing based on industry data, business reviews, performance, and market conditions.
Find Key Areas That Can More Easily Adapt to Price Changes
If your business is more service based than product based, a way to respond to inflation is to raise the prices of certain services that are a smaller portion of your overall revenue. The benefit of this is that you can test it out without the fear you will lose a huge portion of your customers.
One Week Bath is an example of a company that adjusted their prices in some areas and then monitored the responses. The owner, Matt Plaskoff, noticed they had several smaller bathroom remodel jobs with low margins. He realized they had the room to risk some loss of business in this area, so Matt raised prices, figuring if customers accepted the price, they’d have higher profits, and if they didn’t, they’d have fewer of the smaller jobs and could focus on the bigger ones that led to higher pay-offs for the team.
Six months later, One Week Bath’s win/loss ratio on the smaller jobs remained unchanged. The additional revenue meant higher profits and more bonuses for the whole crew.
One Week Bath learned the idea is to slowly nudge prices on all jobs, including product price increases, then wait for feedback from the market to see if they had gone too far or not.
If you correctly assess your risk, the right price can be its own reward.
Track Responses and Adjust Appropriately
A key aspect of raising prices is continuously monitoring customer reactions and gathering data and insights on how the changes are affecting overall revenue. Taking the time to track your every move and the results will not only help you navigate the inflationary period, but it could also provide valuable insights into your customer base that goes beyond a challenging time.
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