In 2016, the cost of toluene diisocyanate – a chemical compound that the company uses to produce its polyurethane foams – increased nearly double.
“Back then, I had no idea the world was experiencing a shortage until the price of the raw material increased,” he says. “I had to force myself to think about the situation rationally.”
If you’re looking to raise prices, consider the following steps as part of your process.
The first step is to confer with your number people as well as your customers. Go over numbers in categories such as raw materials, logistics, outsourced work costs and marketing and advertising, among other variable and fixed expenses, with your finance team.
Roberta Perry, founder and president of ScrubzBody Skin Care Products, consults with her vice president of production.
Coordinate the timing of raising prices. You can raise prices whenever you need to, but if you’re waiting for the right moment, some business owners suggest:
Scenario #1: Raise prices when there’s company change
Small businesses sometimes suffer from “raising price-itis” more than larger companies. “We have more direct connections with our customers, so when the price changes, it is noticed more,” Perry explains. “I had always done it at specific times in our growth, like when we moved to a new shop or introduced a new product.”
But what if you raise your prices when you aren’t making a change with your business? How should you clarify the jump in costs?
Perry reminds her customers of the value of owning her skincare products (it’s handcrafted and not mass-produced).
Scenario #2: Raise prices when the world is changing
The pandemic is one such example, but other situations necessitate a price increase. Take, for instance, gas prices increasing when you’re a delivery service.
- Use marketing to help with raising prices.
The right type of marketing can make consumers have the mindset of, “You know, this product or service is so great, I don’t mind paying high prices.”
Create an influencer marketing program
Brands should partner with influencers and reputable people to review their products to boost their quality perception. Once the market’s perceived value increases, companies can safely increase the price, and consumers will still buy the product.
Hold a sale before raising prices
Perry once ran an “Almost Changing Prices Sale” a few days before she raised her prices. Customers bought many products while being aware of the upcoming price increase.
Offer a subscription or a discount for loyal buyers
Some customers may be willing to spend more if you give them a discount for being regulars.
Think of the restaurant that offers rewards for spending a certain threshold or the companies that offer a cheaper subscription if you pay for an entire year instead of monthly.
Raise the quality of your product or services with your prices
If you own a restaurant and buying a burger will become more expensive for your customers, you could start purchasing a better type of beef from your supplier. That will cause the burgers to be even pricier, but if they’re better burgers, your customers may not mind.
Add a new perk
Or don’t change the product or service — but add a new incentive. You have to pay more, but you’ll receive free shipping.
Raising prices takes a lot of consideration. The last thing you want to do is lowball your prices to realise later that you must raise them even more — that could drive customers away or start to turn them against you.
And that’s too high a price for any business to pay.