Navigating Inflation: Price Adjustments

Should I be increasing my prices? 

Maintaining profitability and adaptability is a constant challenge many businesses face. The decision to adjust prices should not be taken lightly, as it directly impacts your customers' experience. However, it is a crucial step to ensure your business's viability and growth amid the changing economic climate.

In part 1 we delved into the interaction between inflation and sales, exploring how the surge in prices is altering consumer habits. In part 2 we are discussing putting your prices up in line with inflation, as it continues to loom over markets, businesses must consider timely and well-structured price adjustments to navigate the complexities of pricing in 2023.

Recognising the Need for Price AdjustmentsInflation tightens its grip, leaving businesses at a crossroads, with the question of when to implement price increases. Waiting too long might jeopardise your business's financial health, while acting too hastily can isolate loyal customers. Consider these factors when deciding to adjust your prices:

• Last Price Adjustment: Reflect on the timing of your previous price increase. If it's been a considerable amount of time, revisiting your pricing structure could be warranted, especially if your costs have risen significantly since then.
• Market Position: Analyse your position in the market and your competitors' pricing strategies. If your prices are below average and you offer a premium product or service, there may be room for adjustment without losing your competitive edge.
• Inflation's Silent Impact: Recognise how inflation silently erodes profits from various angles, such as increased supplier costs, higher staff costs, and elevated energy and utility expenses. 

Mitigating the Psychological ImpactRaising prices can trigger psychological resistance among consumers. To minimise this impact and retain customer loyalty, consider these strategies:

• Bundle Adjustments: Rather than raising prices across the board, bundle products or services to offer perceived added value at the existing price point.
• Tiered Pricing: Introduce tiered pricing plans to provide options for different customer segments, allowing them to choose the level of service that aligns with their budget.
• Communicate Value: Clearly communicate the value your products/services bring to customers. Highlight improvements, additional features, or enhanced quality to justify the price adjustment.
• Gradual Increases: Implement incremental price increases over time rather than a sudden large hike. This approach eases customers into the change and minimises resistance.

Strategic ImplementationWhen the decision to raise prices is made, it's essential to execute the adjustment with precision and communication:

• Cash Flow Consideration: Evaluate the potential impact on your cash flow. A carefully planned price adjustment should result in increased revenue that offsets any potential short-term decline in sales volume.
• Internal Alignment: Ensure that your teams are aware of the price changes and understand the reasoning behind them. Consistent communication will help align your organisation's messaging to customers.
• Monitoring and Flexibility: Keep a close watch on customer response and sales patterns following the price increase. Be prepared to make further adjustments if the initial impact is greater than expected.

Navigating price adjustments in an inflationary environment requires strategic thinking and a focus on the impact of inflation on profits. As inflation continues to affect the business landscape, timely and well-planned price increases can be a proactive measure to safeguard your business's financial health. By analysing your market position and understanding customer loyalty businesses can rise above the challenges of inflation and maintain their competitive edge in 2023.

Get in touch with us via  info@oldfieldadvisory.com or call 02476673160 for support and advice. Let's work together to grow and strengthen your business.

Please note: This article is provided for information only and was correct as at time of writing (07/09/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.