The purpose of a business venture is to provide value to the marketplace and be successful. To become a successful business, an organization must have access to resources and leverage those resources.
A business must provide a good product for a good price. The market will signal the firm when to raise prices.
The fear is that raising prices will be harmful to the business. Raising prices has the risk of loss of sales or customer revenue but raising prices also certainly produces pricing power, increases perceived value, and promotes growth when done right. Knowing when to raise prices helps the business sustain the benefits that are provided to the market by the firm.
Again, access to resources increases business success and higher prices means higher access to leverage to maintain success.
When should prices be raised?
Prices should be raised when there is too much demand, increased cost, consistent price cycle and in cases of conducting market price testing.
Why Raise Prices
PRICING POWER
Raising prices provides the business with power, pricing power. Pricing power is when business raises prices but does not lose any demand. Absolute pricing power suggests that a business can always raise prices and never lose any demand. The ability to raise prices will cause the competition to react and adapt to the business making the changes putting the game on the defensive.
A business earns pricing power by not competing on being the best price but by being the best product on the market. The more a business charges the easier the business can achieve becoming the best product on the market by having access to more leverage and resources therefore focusing on the improvement of the product and service and not having the worry of paying the rent.
RAISE THE PRICE RAISE THE VALUE
After a business raises its prices, immediately the product increases in perceived value. The first signal of quality and value for a consumer is price then comes everything else. The discussion of the value of diamond does not start with the four Cs, (the criteria diamonds are valued agianst), it starts with the price. The education presents and justifies the value after.
Price is the quickest indicator of value because it signals to the buyer that something is for sale and the potential quality of that product.
Business that increase process improve the flexibility of the business, making the business able to pivot with the marketplace.
With higher prices goods and services provided by the business increase the prestige of the company brand.
Consumers use price as a short cut ti find quality products and then discover if the transaction is fair or not.
When sales are consistent and increasing tasing prices controls the speed of demand and attract confidence in the marketplace.
GROWTH
Company must raises prices to grow. The operating cost of today will not be the cost of tomorrow. For company to grow it must have room for change, revenue and liquidity allows this room for change. Setting prices for tomorrows expansion secures the business today.
By increasing the margins between the cost and the price the business can take the added profits/revenue and plan for future purchases or obtain valuable resources.
Raising prices keeps the business running through flexibility, access to resources, and sustainability. Businesses commonly incur new cost and become more expensive as time progresses increased prices helps navigate the increase expenditures.
When To Raise Prices
NOT ENOUGH RESOURCES TO SECURE SALES.
Sales are high but business is slow and the reason for this slow pace is the resources needed to fullfill the orders are hard to come by. The lack of resources make it impossible for the company to fulfill the customers request, unless an increase funds are injected into the business.
Resources like raw materials such as cotton, fabric, wire, paper, equipment, tools, etc., are used to produce the products or provide the service to customers.
Increasing prices will give the business the flexibility to purchase the materials, tools and other resources needed to complete the purchase orders.
TO MUCH BUSINESS TO HANDLE.
A business with a workload that cannot be handled by the firm will create a dangerous atmosphere for the company. To much demand means having a long list of backorders, and backorders increases the possibilities of losing sales that were previously fulfilled.
The demand for a product will continue to increase if no adjustments to the prices are made.
A business that cannot keep up with demand must increase the price to slow the velocity of product demanded. The speed of the orders for quality product will increase until a rate increase adjustment slows the velocity of demand.
A successful business with a quality product that delivers on its promise to the customer will always push the limits of demand. The lever to adjust demand velocity is price.
Adjusting the velocity of demand puts the firm in a position of control therefore harnessing the quality, service and prestige of the business and the product.
The myth of rising prices is that all the customers will abandon the brand but if the demand is present the market will react positively to the rate increases making the business more profitable.
A quality product will always have a demand, to increase demand provide better quality product not easier access to the product with lower prices.
The increase in price should slow the demand into a more manageable pace.
A business with to much demand is a good problem but it is a sign of lack of man power and efficiency. The presentation of lack of man power and effiency is more harmful than the prices set.
Rising prices will provide the business with enough margins to hire more staff to keep up with the demand and become more efficient, expanding the team and the capabilities of the business.
COST ARE RISING
Every business has manufacturers or raw materials to purchase at at prices previously set but external forces will affect the existing agreements for the prices.
The some external forces or factors are market demand, economic down turn, government regulations which all play a role in the cost of these materials for the business; once the costs go up the prices need to rise.
ITS BEEN A LONG TIME BETWEEN PRICE RISES
When a business has rising prices the public gains confidence from the brand. Rising prices signals to the market that the business is successful.
Price is the first signal of quality and the everything that follows, the product, the service, the packaging and the messaging of the brand has to comunicate the preception of the higher quality.
To maintain the quality standard of the brand margins need to be adjusted and the quality of the product has to be improve to communicate the increase prestige.
Subtle consistent intervals with rising prices help the public accept the changes and maintain the velocity of demand.
CONDUCTING TESTS
The market is always changing and with it the value held for products and services.
At first only governments could own computers because of the expense and sneakers were only meant for the rich yuppies in the 1930’s and 40’s because they had more than enough time to play sports a recreational activity. Now sneakers and computers are set at different price points some expensive and some affordable and accessible to everyone, things change in the market and so does price.
Pricing is a constant experiment of understanding how value is registered by the market.
Testing the market by increasing the price and monitoring the demand will signal to the firm how the market values the brand and the product. A company will understand the value of their product by conducting pricing tests and pushing the limits of their price.
The more liquidity, revenue or funds, a business has the more flexibility an organization owns. A firm that has flexibility can pivot directions in the market to adapt to the market conditions and remain successful. To have more liquidity a business must project confidence, and raising prices increases confidence in the market if executed in such a manner not to shock the public.
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