Pricing and the Rise in Interest Rates

After several years of low interest rates, the Federal Reserve has determined that inflation is taking hold and thus the need to raise interest rates to keep inflation at bay.  What does this rise in interest rates mean to you as a business owner?

It means that the products you sell will cost you more because your supplier will increase his prices to you.  It means that if you purchase your products on credit, the interest rate associated with your credit card will also rise and your installment payments will increase as well.  Any loans that you may require will carry a higher interest rate and you will be paying more for the cost of money. What are you going to do to maintain your profitability with these increases?  You are going to raise your prices to your customers as well.  But, increasing your prices comes at a risk; that is, losing some customers.  What are you going to do?  Raise your prices, of course.  Here are some strategies to consider.

Marketing and Advertising

When developing your marketing plan, you must think of the perceived value that your product offers your customers and express it in a way that your customers will understand it. Remember when you created that business plan, you had certain specifications for the products you would sell.  In addition, you would offer your customers one or more of the following values and benefits: quality, durability, selection in your product line, convenience, features and availability.  These will attract your customers even when you decide to increase your prices.  And, remember to toot your competitive horn when placing ads or delivering that pitch.

But, How Much?

You should be methodical in determining the amount of that increase.  Rather than making sizeable increases, it is more acceptable if you were to increase prices in increments.  For example, a $1.00 increase might make customers hesitate less than a $2.00 to $5.00 increase.

Concept

Starbucks changed the rules of the game of selling coffee.  You could go into a Starbucks and sit and do your computer work or meet friends, or even have a meeting, all for a cup of coffee.  Customers became so hooked on their coffee that they would buy it no matter the price.  Consider how you can change the rules by rethinking what you are selling.  Ask yourself, “How do I add value?” and “Who is willing to pay for that value?”

Target Market

You must think about the customers you have; would they pay a higher price for your product?  Companies should always set prices according to what their customers are willing to pay. Remember: “it is what the market will bear.”

Tiered Pricing

There are lots of ways to charge different people different prices.  You can create two tiers for example, call one “elite” and the other “basic.” Consider the tiers of pricing that the cable companies use for their offerings.

Timing

Roll out your increases gradually over a year.  That will take the sting out of the increase.

To gradually increase your pricing will insure that you will be able to maintain your profit margins and continue to do business.