The Cost of Getting a Price Rise Wrong

By Cath Brands, Chief Marketing Officer, Flintfox

Increasing prices is one of the fastest and most effective ways of maintaining or improving profitability, but it’s far from simple. According to the latest quarterly survey of the British Chambers of Commerce, almost two-thirds of firms expect to raise prices over the next three months, the highest number since the survey began in 1989.

With the rising cost of raw materials, upward pressure on wages and fuel costs soaring, the impetus for companies to put up their prices is the strongest it’s been for decades. Even brands defined by their low prices such as Primark have announced that prices will rise in response to market conditions.

However, price adjustments need to be handled with care as the cost of getting a price rise wrong can be just as damaging as failure to act. Supermarkets for example are coming under fire from media and campaigners for increasing the price of many essential foods, including dried pasta which has gone up by 41%, while simultaneously issuing profit warnings.

As the GfK customer confidence index fell to -31 in March, companies are finding themselves caught between the need to improve profitability and the requirement to maintain revenue and customer loyalty.

Companies that err on the side of caution might please customers and maintain sales volumes, however, they can find themselves losing out on the opportunity to drive greater profitability in certain SKUs or fail to protect themselves against further market volatility. Retailer Next announced plans for a 6% price rise back in Jan, only to deliver an upward revision two months later.

Despite the critical nature of pricing decisions, they’re not always based on sound data and as a result pricing is still imprecise for too many companies.

We carried out research with Forrester which revealed that nearly two thirds (60%) of retailers believe that poor quality data is a fundamental problem for their pricing strategy. According to the research just over half (52%) of those asked have trouble executing different pricing for products across different channels. Retailers are often forced to resort to raising prices across the board, increasing the risk of damaging customer loyalty.

As inflation persists and input costs continue to rise while shoppers become ever more price sensitive, pricing decisions based on accurate, timely data has never been so important. Sophisticated, intelligent pricing technology should be a priority for businesses as they develop strategies to manage an increasingly uncertain retail landscape.

Intelligent, automated pricing enables businesses to collate data from a wide variety of sources and bring it into one platform. This can provide an immediate view of their costs across the board and can enable them to carry out price calculations in real time. Intelligent pricing can analyse, collate and compare thousands of data sets to serve around 5,000 prices every second. Margins can be expertly calculated, however complex and dynamic the input costs.

As a result, businesses can change their prices quickly, basing their decisions on solid data rather than guess work. Brands and retailers can see clearly and immediately where they have pricing power. They’ll know where they can absorb cost increases, which SKUs can withstand price rises and where prices must be constrained to retain customer loyalty.

Agile, accurate pricing based on solid data can also enable businesses to identify opportunities to offer customers discounts or reductions based on volumes. These offers can also relate to total spend and upcharge components such as freight charges. In B2B and wholesale markets, sales teams are able to make better decisions about discounts aimed at attracting new customers. With properly calculated prices already in their systems, salespeople can select the appropriate discount for new clients as they enter the order.

The next few years will continue to present retailers with challenges to their profitability and their ability to recruit and retain customers. The need for accurate, agile pricing based on strong metrics has never been greater – neither has the ability to access it.