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Time to revisit your pricing

Posted: May 12, 2014 1:56 p.m.
Updated: May 12, 2014 1:56 p.m.

 

If there is one thing that makes me angry, it is the statement stuffed into my cable television bill telling me that the price I have to pay has gone up.
No notice, no advance warning just a matter of fact statement which basically says, “Now you will pay more.”
My water company encourages me to reduce usage yet they increase rates because the volume of water has dropped and they need to make up the revenue shortfall.
Compare these two cases with a very nice one page letter I received from my health club which opened by thanking me for my patronage and support.
The letter outlined four specific areas in which the club was making improvements and it included a comment that the facility was nearing membership capacity.
The letter went on to say that there had been no increase in dues in 2013 but in sixty days the price was increasing by three percent to cover increased costs in operations.
Of the three increases, this is the one I understood because management took the time to explain in plain English the reasons behind raising prices.
Pricing in business is a funny thing. It drives both revenue and profits but many business owners are not very aggressive about raising prices. Some are afraid.
The Bureau of Labor Statistics shows that inflation is running about one percent annually. This measure excludes two very important drivers of consumer spending: energy costs and food costs.
John Williams conducts research into U.S. government economic data and reporting and provides an assessment of economic and financial conditions. His analysis, available at ShadowStats.com shows that inflation is currently at five percent and has been at or above this level since 2010.
If you wonder why your employees are getting concerned about not getting raises, this is a good reason why. They are caught in a squeeze between an income cap and rising costs of living.
If you wonder why some of your vendors are pushing their rising costs to you, inflation explains it.
Research suggests that approximately twenty percent of buyers purchase on price alone. Most of the rest are considered value buyers, not afraid to pay more for quality products and services.
One client, in manufacturing and distribution, aggressively raised prices each January. When there was an issue with a particular client on a specific product, the price increase was negotiated. But many clients did not object.
Every year revenue and profits grew, which soon made the company a suitable target for acquisition. Those annual increases added millions of dollars in profit which increased the value of the company.
I have one client who has aggressively and consistently raised prices on all auxiliary services provided to clients.
These are not small price increases of a couple of percent; these are double digit increases that are taking place every six months or so.
No one has said a word. Sales are actually increasing on these items. So are the resulting profits.
I have another client who has been afraid to raise prices out of fear that his clients will find another vendor who is less expensive.
Benjamin Franklin provided some insight into this fear. He said, “The bitterness of poor quality remains long after the sweetness of low price is forgotten.”
If you believe you can’t raise prices, understand that it is mainly in your own head, not the head of your customers.
If you do not believe that what you sell is more valuable than last year, or even just six months ago, consider for minute what your clients are really thinking about your company.

Ken Keller facilitates The Wise Owners Advisory Boards, bringing business owners together for education, sharing and on-going success. Contact him at KenKeller@SBCglobal.net. Keller’s column reflects his own views and not necessarily those of The Signal.

 

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