It’s Time To Raise Your Prices – Though Everyone Will Tell You Not To
Recently I read a quote from an analyst for Edward Jones who said, “I think we’ve reached the wall in terms of raising prices. Consumers can’t take it any more.”
Really?
They’ve stopped putting gas in their cars, supersizing their “value meals” and foregoing makeup?
Of course not.
Are they asking for “What’s on sale” or for the “deal?”
Yes.
Does that mean you can’t raise your prices?
No.
Look, most businesses held the line on price increases over the past few years hoping they could hold onto customers. That went for dealers, distributors, manufacturers and retailers.
But those same people are now realizing the economy has gotten better, so they are looking to recoup the losses they had previously absorbed. That’s why inflation is coming – from everywhere.
Yet there is this, in my opinion, misguided presumption that price transparency is what it is all about. That customers “know what you paid for an item” and know that low prices are the only way you can compete. The customer is now the “pricing expert.”
Baloney.
Price doesn’t make something a great value, people do.
Underpricing to try and persuade people to shop with you doesn’t work as a business model. Sure you can buy market share but someone somewhere is footing the bill – the owner or the stockholders.
When I rhetorically asked my audience recently how much their mark-up was, a woman shouted back, “You mean what it should be or what I have to make it in order for it to move?”
Let’s face it, ask customers what they want to pay and they’ll say nothing. They want the choice steak, cooked to perfection, cut, put on the fork and pre-chewed so all they have to do is swallow – and all just for the privilege of feeding them.
OK that might have gone too far, but you get my point…
Many people feel items are “grossly marked up.” Yet the markup between what the retailer pays the manufacturer or distributor covers all the costs of having a brick and mortar store where customers can shop and leaves the shop owner only 3-4 cents profit on the dollar.
Labor costs have gone up because as the economy has gotten better, the best employees are looking for more money. Material costs have increased along with a host of other fees and costs.
If you as a retailer don’t increase your prices enough to be profitable, you’ll be gone.
Don’t care if you try to get a cash mob to love you, your sign is plastered with “buy local” or the rest. If you can’t be profitable, you won’t be around.
You don’t get stars in your crown for incurring more debt because customers pressured you to lower prices. You have to lower your debt and you can only do that if you are making more profit, not less.
If you are doing everything in your power to provide an exceptional experience to everyone you meet, if your customers willingly drive past your competitors to shop with you, if you do extra things for no charge but you still aren’t making money…what are you waiting for?
Don’t take your knowledge and passion out of your pricing or you’ll be reduced to an out of business sign.
Tomorrow: Raise your prices. Here’s how…
So well said. Could not do better myself.
Thanks Jay!
No. my prices are not low and my buisness is profitable
Great Tom! Glad you’ll be around!
GREAT post! We believe most of the customers walking through the door are repeat customers because we work very hard to have the best customer service, we gift wrap and are knowledgeable about our products. Are our prices the lowest? Nope. We don’t overprice but know we need to cover our costs and make a profit. We don’t get complaints but every once in a while you hear a customer make a comment to a friend ‘ I saw this online at …. cheaper’ or ‘ you can get something similar to this at … for cheaper’. BUT those are not the people who are buying in our store or making our business profitable. If we focused on those small amount of people and tried to compete with big box discounters then we’d be out of business.
Great points! I once had a customer in my pub tell me I was charging too much because he could get a beer for .50 less at the dive down the street. He said “the market sets the price” I told him my liabilities set the price and the market would determine the value. He didn’t seem to think it was ironic that he preferred to drink in my clean, pleasant, friendly place and was obviously willing to pay for it.
Recently I read (so sorry I can’t remember where!) that you have to charge enough to do what you do REALLY well. I think that’s important. Charge more, and make it worth it. Remember the old L’Oreal tagline? “It costs more, because you’re worth it”
Spot on right! There are ways to “add value” without losing profits.
Great Article! I have over 120 dealers and one of the biggest mistakes I see is under pricing their merchandise and service.
Yes Pete, I think if we were to really look at underpricing there is a direct connection to self-image. Thanks for commenting!
I refuse to discount any longer except for fire sales or seasonal merchandise past its prime. I go out of my way to bring in top quality merchandise, sales support & a retail environment for my customers that is just not available at mass merchants… If they want discounts they can go to WallMart.