Raising or lowering prices
How to analyse the impact of price changes and explain them to customers and the considerations to take before raising or lowering prices.
There will be times when you need to change your prices. But before you do, you should analyse the impact on your profitability of any proposed price change.
There are two key questions you will need to answer:
- What effect will the price change have on the volume of sales?
- What will the effect be on the profit per sale?
Increasing prices
Increasing prices can improve your profitability even though your sales volume may drop.
If you are increasing your prices, always explain to your customers why you are doing it. You can use the price change as an opportunity to re-emphasise the benefits you offer. A good explanation can also strengthen your relationship with a customer.
There are also ways that you can hide price increases. For example, you might:
- introduce new, higher-priced products or services and make older, cheaper ones obsolete
- lower the specification - and your costs - while maintaining the same price
But be aware that hiding price increases can have risk adverse reactions from customers if they realise what you are doing.
Reducing prices
You should never take the decision to lower prices lightly. Low prices often go hand-in-hand with poor-quality service so you need to consider how this will look to your customers.
Concentrate on building profits rather than cutting prices to build up sales. In most circumstances, your customers decide to buy from you because of the benefits you offer, along with your price. It is rare for the decision to be made based solely on the price.