Leaders: Is It Time to Raise Prices? by Brian Buck
Then there are businesses whose products and services aren’t as hampered by labor shortages or supply chain outages. For example, the travel industry. While airlines and hotels were especially hard-hit during the pandemic, they’re starting to come back in areas where COVID’s impacts are subsiding. In these markets, their businesses are in high demand, and some are using this moment as an opportunity to make up for lost revenue over the past few years. These aren’t the only reasons for raising prices, but all of us will be dealing with price increases — either by giving them or receiving them. Here are some thoughts on how to deal with either situation. Giving a Price Increase Every business’ timing and reasoning for its price increase will vary, but here are some tips for putting you and your team in the best position possible when rolling one out: Don’t overexplain. When delivering bad news like a price increase, we tend to overexplain the situation, hoping that the lengthy explanation will ease the pain. Unfortunately, the longer the explanation, the higher the likelihood of you adding in weaker arguments that could dilute the stronger arguments. Develop the best argument and ensure that your team sticks to it. Be ready to answer tough questions. Having answers ready for tough questions like “why?” or “can you make an exception for me?” will help your team immensely, giving them confidence and creating alignment. Without those answers, you run the risk of your team making difficult situations even more difficult. Consider grace periods and other timing elements. Time is a powerful tool. If circumstances allow, you can use it to make the transition to higher prices easier to deal with. Consider giving grace periods or one-time exceptions in return for long-term acceptance of the new rates.
There’s no denying what’s happening in the marketplace: much of China is still in lockdown, which is disrupting supply chains everywhere; sanctions against Russia are limiting oil supply in the world market; the Fed is raising rates; and the stock market is shedding value daily as both the Dow Jones and NASDAQ near 52-week lows. All of which is contributing to an inflation rate of 8.5%. It begs the question: Is it time to raise prices? For some businesses, there may be no other choice. In particular, businesses that rely heavily on human capital have been forced into a position of paying higher wages to retain talent. When labor is the majority of your cost model, trimming overhead is your biggest lever to pull in order to maintain margins. However, most unessential-personnel trimming happened during the pandemic, and there may be no more to cut, so the only option, at this point, is to raise prices in order to maintain operational sustainability. Other businesses dealing with supply chain shortages may have to raise prices because volume selling won’t help their bottom line, since there’s limited volume to be had. Instead, they have to make the most out of every sale — and that might mean raising prices to temper demand and maximize every sale opportunity.
All of us will be dealing with price increases.
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