Raise Prices at Your Own Risk
Sure,
there's plenty of cover right now: supply chain issues, tight labor and a
pandemic. But your customers are not going to forget being gouged.
BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@TULLMAN
Weary consumers who are already overwhelmed
and angered by the rising prices of everything are starting to realize that
it's no longer a matter of supply chain congestion, excessive "free"
money from the Fed, the rising wages of "essential" employees, or the
unseen but oppressive hand of inflation that's making their lives more painful
and their pocketbooks lighter. As much as Elizabeth Warren berates the greedy
corporate leaders and, while President Biden sics the antitrust lawyers on them
and the media dutifully chimes in, the root causes of rising prices are far more
local in nature and far simpler to explain.
It's not the Fed or Ford Motor or Dr. Fauci
jacking up prices at the grocery store and making a meager meal at the corner
diner cost as much as the fine fare at a fancy French restaurant. It's Fran,
your friendly pharmacist, and Harry at the hardware store, and even the guy at
the bagel shop down the street who is making sure that your bucks don't buy as
much anymore. Every business in town is taking a joy ride on the margin
expansion merry-go-round and no one wants the music to end.
While the media's begging you to shop local,
and Amex is stoking Small Business Saturdays, the truth is that it's not the
Saudis or some other nasty boogeyman but your neighborhood merchants who are so
hooked on the COVID inflation gravy train that they can't seem to quit gouging
everybody and their brother every chance they get. The "new normal"
sadly seems to be "grab as much as you can get" while the gettin's
good and before the golden goose flies away. Price hikes, scarcity allocations,
surcharges for pickups and deliveries and all sorts of other things are
everywhere you look, and many are buried where you can't even see them. More
importantly, whether the business is large or small, each one of them thinks
that there's no reason in the world to take a step backwards and reduce prices.
But consumers have longer memories, far more
alternatives, and considerably less patience these days than these clueless
mercenaries imagine. I expect - just like the much-abused tenants of the world who
will soon enough extract their pounds of flesh from landlords who basically did
little or nothing for them through the two years of the pandemic - that once
the dust settles, what little care, concern or loyalty anyone had for the
little business down the block will be long gone. We're going to be seeing
Amazon and Walmart vans up and down the block all day long, every day, for a
long, long time.
If you'd like for your business to be on the
right side of this particular nasty storm - morality aside - now's the time to
take a careful look at your own pricing and your going-forward strategy and to
do two important things: (a) make sure the numbers still make sense for your
business and your customers; and (b) make sure you communicate and carefully
explain the reasons for price increases to your customers before you get lumped
into the pile with all the other penny-wise and pound-foolish pigs who are hoping
that their regulars never catch on. Most of the justifications and rationales
that worked during the early, intense phases of the pandemic just won't cut it
much longer and businesses are running out of excuses and people to blame. If
you want to do better, make sure your explanations make sense. You don't want
to be the guy who blames the band because he's a lousy dancer.
Here are the three most critical parts of the
conversation.
First, a transaction is not a trade.
A transaction is a promise of solid value for
a fair price. No conditions, no add-ons, no expectations, and no strings.
Nothing is expected in return - there's no quid pro quo - no exchange of data,
personal information, lengthy commitments. If the price doesn't make
economic and business sense for both parties, it's not going to build a real
connection and a continuing relationship based on actual mutual advantage, and
therefore it's not worth doing. Sure, you're in business to make a profit, but
only if you hold up your end of the bargain and deliver the goods. And, even
today, you still get what you pay for and if the seller isn't getting paid
enough - given his or her real costs and expenses - to provide a high quality,
professional product or service, then ultimately everyone loses. This is not
something to hide or evade; it's something you need to explain.
Second, a transaction is not a one-time offer,
a short-term deal, or some big favor.
While everyone's in a hurry to get back to
business as usual (as much of a fantasy as that may be), there's no long-term
upside to trying to quickly build back your business with gimmicks, fire sales,
discounts, "extra" bucks or points because: (a) a sales gimmick sends
the wrong message about longevity and continuity; (b) consumers readily see through
insincere attempts to reduce COVID-inflated prices simply by returning them to
pre-pandemic levels as if that's some kind of substantial benefit to them; and
(c) it's never smart to try to build volume and traffic simply through
discounts because that trains your customers to buy on price rather than brand
or value.
Third, you've only got one good name,
reputation, and brand to bet on
At the end of the day, your brand and your
reputation aren't transitory and fluid. They're promises of the values you're
committed to honoring all the time. Honor never grows old -
it's always about protecting the worthy and important things that need and
deserve to be defended whatever the cost. If you're not willing to extend
yourself for your clients and customers in the tough times when all these
things are being tested, then they're not essential parts of your mission and
purpose, they're nice-to-have hobbies to brag about in the good times. We're
all ultimately selling trust - even as that gets to be harder and harder to do
every day - and people need to see that we can be depended on and relied upon
to act honorably and appropriately in good times and in bad because it's the
right thing to do. Customer trust is hard to win and easy to lose.
And, just to be clear, your decisions and your
behaviors are also observed and evaluated every day by your own employees -
they're customers and consumers too. The very last thing that your business can
afford is for them to lose faith in you and what you're all trying to accomplish.
The best employees today want to do good work, want to actually help others,
and want to be proud of the way they do their work and the results. Your
customers will never be happier than your most unhappy employee.