Profits Getting Squeezed? Consider Raising Your Prices – Here’s How To Do It.
The business economy has been brutally beaten lately. With so much volatility and unpredictability, company profits are getting squeezed. So, what can B2B companies do about it?
When profitability suffers, the first step is often to lower company costs. Applying lean process improvement can ensure that tasks and workflows are both efficient and effective, which can have enduring positive effects on the bottom line.
Another option is to consider outsourcing functions like IT, payroll, and even manufacturing. Your organization may discover that alternate raw material suppliers, contractors, or temp employees can bring the necessary skills to the workplace for less.
However, cost reductions can only take your business so far. To maintain profitability, companies also need to take pricing action. There are strategic ways to raise prices, but these increases must always be carefully implemented, keeping an eye on the competition.
Let’s explore four ways to strategically raise prices.
First, get creative with pricing models. Consider how unique your products, services, or parts are to your customers. For instance, mark up custom products while keeping commodity items like nuts and bolts lower-priced to avoid substitution. You can also create ‘Good,’ ‘Better,’ and ‘Best’ product tiers, allowing pricing flexibility. Additionally, think about bundling items that are often purchased together. Bundles can be priced slightly lower than the sum of the parts or higher if they offer efficiency gains.
Second, tweak how your product is defined. Add a valuable service component, like installation or vendor-managed inventory, to a physical product. Branding delivery or maintenance contracts can also provide better price differentiation. Even simple changes like adjusting product packaging or modifying the price structure with a different unit of measure can offer opportunities for price adjustments.
Third, be competitive about value. Many companies hesitate to communicate the quality and value of their products, but it’s essential to be explicit. This is a marketing challenge any skilled CMO can accomplish. Research your customer’s operations in detail and determine what end benefit your product provides. Then, price accordingly, and collaborate closely around innovation and product development. You can also use a product and pricing comparison tool on your website to justify a higher price.
Fourth, play terms of use to your advantage. Some companies see significant rewards by modifying terms of use for their products. For example, you can mark up freight and rush orders or apply a surcharge for small orders. Consider changing cut-offs and target levels for volume discounts or rebates. Additionally, enforcing surcharge rules in contracts for fuel, shipping costs, or raw material price pass-throughs can help optimize pricing for high-use SKUs.Even if you’ve found the right pricing strategy, it’s wise to charter a cross-functional pricing team that includes Sales, Marketing, Finance, and Operations before implementing any increases.
In conclusion, making a price increase stick requires proper market research and strategic planning. Effective pricing starts with segmenting the market based on customer needs. If you understand pain points, you can design and price an offering according to the value it provides.
It is worth revisiting that adjusting your pricing is a sound business decision and strategy when profitability gets squeezed. Marketing, PR, and customer relations can and should play an outsized role in ensuring that increases are positioned as a win-win for your business and the customer.
By taking these steps, your company can navigate economic challenges and come out stronger on the other side.
