From talking with many of my clients, I am happy to report that they tend to think that the difficulties in the economy are overly exaggerated. Many of the business owners that I know are continuing to grow their top line or, at worst, holding steady. However, they are getting squeezed on the expense side with the rising cost of raw materials and utilities.
One way to offset this squeeze on margins is to increase prices. But before you run off and increase your prices to offset your increased costs, I suggest you pause and reflect strategically:
1) First, how do you wish to position your products or services? Are you competing in the lower end of the market where volume is king or at the higher end where service is. Your pricing should reflect where you wish to participate in the market.
2) Were your prices positioned correctly before your costs began to skyrocket? Do you have some backpedaling just to get where you should have been all along?
3) What role does branding and marketing play in your strategy? Maintaining marketing and advertising during turbulent times is often vital to success.
4) And, finally, consider the entire picture. Look at the margins both gross margins and profit margins on all of your products and services. Don't just arbitrarily raise prices to cover costs. Think about repositioning some products, adding services, increasing advertising, changing marketing tactics and, then finally, how does all of that affect the pricing of each product and service individually and as a whole?
As a final note, think about the long term - where do you want your business to be positioned once we are past this blip in the economy? I'll bet you want to be financial sound and well positioned with your customers. Keep that long term perspective in mind and think strategically about pricing. Your Thoughts?
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