There are two ways retail business owners can approach product pricing strategy. They can bravely make an informed decision – or they can be crazy brave. Supply-chain cost pressures have been rising for some time – the last two years have squeezed freight, logistics, warehousing, materials, and manufacturing. And that was before inflation and wage pressures were factored in. Absorbing additional costs may be an option when facing short-term issues or in isolated cases, but these
these supply-chain pressures are not a one-off. Costs are rising at an uncomfortable rate and business owners who try to hang on for pre-pandemic conditions to return will be waiting a long time. The question for the retailer is not whether to increase prices, but how and when. Circumstances change and business leaders need to adapt. They may have limited influence over external events, but they can analyse the risks and opportunities of responding to them before they make a move. Softening the blow for customers Customer relationships and product differentiation are critical for retaining market position amid price hikes. Price increases can be communicated with an explanation about what’s behind them if a business has a strong relationship with its customers. Consumer expectations may differ from economic reality. But many customers will understand that inflation and cost pressures are putting the pinch on businesses and, while they may not like a price rise, a robust relationship makes it more digestible. What the competition is doing will also be a factor in determining pricing strategy but it’s not everything – business owners need to focus on their operation. If consumers don’t like a product or service, it won’t make money regardless of its price. Those who understand their customers’ motivations take them on a journey with their products and services, and the value consumers derive from them is part of the story. Play up the engagement element – whether it is local manufacturing, the slickest user experience available, or using transport fuelled by green energy. Don’t forget the social costs too, such as how products are manufactured to avoid modern slavery or conflict zones or packaged using sustainable materials. Sustained cost increases must be passed on to the consumer but that doesn’t have to drive them away. Are my costs bringing benefits? When the price of items is not retreating, look at the gains your costs are delivering and cut those that are not pulling their weight. Turn to cost-benefit analysis to help drive efficiencies – examine why decisions are being made, and, given changing circumstances, whether they are still the best options. How much foot traffic does your business do at 9am? Is it worth opening at 10am instead? If high foot traffic is not forthcoming, shrinking or shifting opening hours creates time that could be better used elsewhere. Is the cost of shipping materials from an overseas location spiralling? Is there an alternative supplier closer to home – or actually at home? Suppliers that were once uneconomic may now be cost competitive. Is your location worth the rent? Consider whether the same products and services can be delivered from somewhere else for less, or whether the higher cost of operating from a better location could produce more business. The questions to ask are endless, and not everything may need to change. But you won’t know for sure until you put things under the microscope. A critical eye on the supply chain Planning is essential to ensure products and materials arrive on time. When the plan breaks down, it is one of the biggest generators of stress in business owners. Analyse scheduling and order quantities, and maximise supplier relationships to ensure production slots, quality control and minimal rework. Maximise shipping capacity by ensuring containers are filled and consolidate orders to distribute costs across the largest product quantity. How effective is your warehouse solution? Consider a logistics expert to assist with efficiencies in layout, pick and pack methodology, distribution partner relationships, and getting the best technology platforms to co-ordinate these activities. Business owners are entitled to make a dollar, otherwise why take on all the risk and go into business in the first place? Accept that the world is not going back to 2019, and factor the higher cost of doing business into pricing strategies to maintain the margins. Endlessly absorbing costs and making reckless price hikes are crazy brave strategies. Smart leaders will examine all parts of the business for efficiencies before acting, to make an informed decision.