If you are not constantly reviewing and updating your prices you could be missing out.
Technology now allows businesses to change prices frequently, minute-by-minute if required. Amazon and Expedia update their prices several times a day and consumers are becoming increasingly accustomed to this state of affairs everywhere they shop – so, if it works for these "big players", what's stopping you from making frequent price changes?
Back to basics: the most obvious reasons to change your prices are:
- Your costs change: when your costs increase, whether it's because your suppliers are charging more or overhead costs increase, your prices should rise too. Only if you can produce a product more cheaply plus maintain a decent profit should you consider a lower price.
- You introduce a new product
- You are struggling to keep up with demand
- You decide to enter a fresh market
- Your competitors change their prices
- Inflation or a recession
- Your sales strategy changes
- You realise you are not selling on value.
- You need to get rid of outdated or seasonal stock
- It’s been a while since your last price increase
- You are trying to develop a different image for your products
At some point, prices will have to rise but this can be a great way to add new revenue to your business and help to maintain a healthy cash flow. Choose a time when you'll encounter the least resistance - your business's seasonality, growth stage and sales cycle will all affect your choice of timing.
Some businesses institute regular, small increases without a formal announcement. Others keep prices the same, but change the packaging and/or quantity of their product to reduce their costs.
In most cases price hikes are staggered to avoid alienating existing customers, the theory being that they become accustomed to higher prices over time.
If you have more than one product, consider raising prices on some items while leaving others the same, or even lowering them. Some customers are sensitive to the slightest price hike for a particular item while not noticing other increases. If the costs of producing your product have risen, the customer normally accepts that the price will have to increase.
Maintain a close eye on sales volume immediately after making a price hike. If a price increase is considered too high, customers generally react unfavourably pretty quickly. Watch your competitors too - if you've made a change in prices, competitors are likely to follow suit.
If you're lowering prices, choose a time when the change will have the most impact - generally, lowering prices is not advisable unless you are using this strategy to increase market share, have a price sensitive product or your competitors are lowering their prices.
Discounts for certain products or services at particular times or under special circumstances can prove to be a powerful weapon. However, used incorrectly they can backfire, resulting in significant damage to your brand, your perceived value, and your profits. A discount should never be used as an "easy option" choice in lieu of the effort required to enhance value.
Make your discounts seem exclusive, scarce and special so people don’t take any savings for granted. Discount scarcity generally encourages customers to move fast and could be in the form of:
- Time - time restrictions for the discount
- Quantity - how many people can access the discount
- Status – only available to the most loyal customers
Discounts should only ever be offered when you fully understand your customer acquisition costs and customer lifetime values.
For instance, if you can encourage enhanced sales by tempting your customer to purchase a less favoured item through tie-ins because they gain a discount when bought with another, more popular product, then you’re using discounts entirely to your own benefit.
However, discounts should never be used in desperation to gain or retain customers when sales are evaporating because they can expose the poor value you attach to your business as a whole.
Changing Value and Price
A price is supported by the value the customer perceives in the product or service.
You can change the pricing and leave the value alone or you can change the value and keep the pricing the same. You can also change both value and pricing or leave them both alone.
Many businesses get the best long-term results from increasing both price and value. Others find that they can cut their own costs while increasing value and therefore provide an almost irresistible offer to customers.
The key lesson about value and price is that these elements can be adjusted to improve demand and increase sales without changing what it actually costs you to make a product. Careful attention to what happens when you change pricing and value could pave the way to solid profitable growth.
Keep Reviewing and Testing Your Prices
To remain successful you need to focus on the profitability of every product you sell almost on a daily basis, which is done by reviewing and testing prices.
For instance, try raising the price but offer a bonus or special service for customers. Measure the increase or decrease in the volume of the product you sell and the total gross profit you generate.
You will always need to be aware of what the market is willing to pay, how your company and product are perceived – and what your competitors are charging.