As the economy improves and companies look at their narrow profit margins, it is time to rethink their pricing strategies. They cut prices to keep their doors open in the recession, and now that the economy will be recovering, albeit slowly, there is a clear signal that increases in materials, labor, and overhead will eat into any profit margin that currently exists.
You need to put in place a solid new pricing strategy.
There are 3 main elements to consider in your new pricing strategy: anticipate higher costs, competitive issues, communications.
You need to make some estimate as to potential cost increases. Maybe make several scenarios to be prepared for various eventualities.
You cannot, should not, price yourself out of the market. However, without a profit there is no long-term reason to be in business. Determine what low profit, no-profit, customers you are willing to lose to your competition. Determine what you are willing to do to retain long-term profitable customers. Exceptional service, outstanding quality, and reliability does enable you to charge a premium price. Are you worth a premium price? What can you do now to ensure your product is perceived as meriting a premium price? Can you bundle services to provide a package pricing strategy?
The biggest fault that most companies make in re-pricing is that they don't communicate it effectively to their customers. There is a need to not just pass price increases through, but to let your customers know what you have done for them to validate the new price. And if your story is not a solid one then rethink what you can do! Good relationships are built on solid communications and understandings. Passing price increases through without explanations, or with a simple letter, is not the way to maintain customer relationships and keep the competition away.
Here is a pricing situation to consider. My wife brought home some salsa this weekend. She paid $5 for one 16 oz. jar and $4.75 for another 16 oz. jar. Salsa at the regular grocery store we visit costs about $2.50 a jar. Why did my wife pay twice the price? She is adamant that it was cost justified. She pointed out the different flavors - although she did not sample the product before purchasing the more expensive salsas. A tiny example of the emotional aspects of buyers and how, with a better understanding of customer desires, you can get a higher, maybe not double, price for your product as well. There is no need to price your product as a commodity when it is not.
Be proactive and determine your strategy for your new pricing.
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