Shoppers – and Retail Buyers – may prefer deep discounts and promo bundles over a price hike, but a strong and stable business is built on a strategic pricing strategy, among other things.
Raising prices is the flipside of giving discounts and promo bundles. Coming at the heels of Black Friday (where most retailers and businesses, unfortunately, did not meet sales goals in 2021), now is actually a strategic time to consider raising your prices.
Current market conditions have put a lot of variables out of your control, and things aren’t changing soon. If you haven’t raised prices yet, you need to face this decision head-on. You can only manage your rising expenses by offsetting them with a reasonable price bump.
If you’re a small business that’s wary of increasing its prices so as not to scare off customers, you may actually be doing your business more damage. Trying to appease clients but doing so at the expense of managing your operational, manufacturing, marketing and distribution expenses puts your business at risk.
Listen as I share with you a checklist for executing a price increase and ease the shock value by managing customer expectations. Think of it as helping establish your brand and business for the long run - and this way, you’ll be of better service to your clients whom you love.
And if you’re still hesitant about a price increase, here’s a concise step-by-step plan to roll out: plan it, communicate it, and do it!
Virginia Foodie Essentials:
Don't spend energy stressing over market acceptance –price increases happen all the time, and buyers are not shocked by it.
You are making a living and providing jobs. Your permission to be profitable.
How you communicate to your customers about pricing sets their expectations.
Key Points From This Episode:
How marketing is crucial in setting and managing customer expectations
Why purpose-driven brands should also be profitable
The relationship between raising prices and increasing costs
When is the perfect time to increase prices
Other Resources Mentioned:
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Click Here for Full Transcript:
Georgiana Dearing: Early in a new year is a perfect time for you to implement a price increase, and here's how you go about it. There are three steps to a price increase, planning it, communicating it, and then doing it.
Welcome to The Virginia Foodie Podcast, where we lift the lid on the craft food industry and tell the stories behind the good food, good people, and good brands that you know and love. If you've ever come across a yummy food brand and wondered, "How did they do that? How do they turn that recipe into a successful business? Then we've got some stories for you.
Hello, Foodie family, welcome back to another Marketing Monday episode. I'm coming to you on the first Monday in December, right after the Black Friday through Cyber Monday shopping kickoff for the 2021 holiday season. I want to talk a little bit about this year's online sales performance because it relates to my larger topic of how sales and pricing are impacted by customer expectations. And the number one job of your marketing efforts is to set proper expectations with your target customer. This year, probably more than ever, customer expectations were managed in part by the media. It's been all over the news that shopping is still not back to the before times levels. While shoppers still expected Black Friday sales events, no one was expecting to see blowout discounts like in prior years. Right now, as I record this, the Black Friday weekend e-commerce sales numbers looked like 2021 performed slightly below that 9 billion sales record we hit over the same weekend in 2020. So no year over year growth. It's essentially flat-lined.
Did this happen to you? Did you hit your targeted growth, or was this year a repeat of last year? I've seen this with a few of my brands. So I'm curious, what happened for you? Email or DM me, and let me know if your sales were up, down, or equal to last year. Regarding those flatline numbers, while an instance of one is not really a trend, analysts are going to be picking those results apart for a while. Identifying the reasons behind this leveling off. If you take a look at the current reality for your own brand, you can probably write that report. Increased costs, labor shortages in supply chain woes. You can source as locally as your own backyard. But if you can't get a jar or even just a cap to seal that jar, then you just can't produce a product.
If you've been concerned about inventory, you are not alone. Everyone has been cautious about promising things they can't deliver. Brands that are selling into retail haven't pushed hard for B2C online sales in part because they want to control inventory in support of their key retail accounts. I've heard brand leaders express caution about running heavy ads over the holiday weekend in fear of running short of their products later in the month. I've also heard of retailers who pre-ordered their December stocking quantities in October and early November in anticipation of December shortages. Inventory control has been a big issue this year.
The last factor in that flatline performance for Black Friday weekend is pricing. All of that supply chain pressure has caused the price of every item you sourced to go up. The labor shortage means attracting and keeping workers costs more. Many, many brands elected to forego deep discounts because increased costs cut deeply into their margins this year. Customers have been trained to expect deep discounts over this shopping weekend. And when those didn't happen, that pressure to buy now eased a bit. Slashed prices set the expectation to hurry and purchase. And when those don't exist, buying slows down.
I will be curious to see what the online sales totals are for the entire season this year. Particularly, because we're also facing early cutoff dates for shipping. By the way, if you didn't hit your Black Friday numbers, you have about one week after this airs on December 6th to hit those goals. So don't let your marketing efforts drop. If you have products to ship now, let people know right now. But I want to turn to the flip side of running sales and creating discounts and promotions, and that is increasing your prices. I know many of you have agonized over raising prices. You've told me how hard it is to do. Holding prices steady in 2021 is probably having the same effect on your business that you used to get from deep discounts. And that's much slimmer margins for you.
If you haven't raised your prices, you should. Your costs won't drop any time soon, and some things will continue to go up. Even if the supply chain magically recovers over one weekend, you won't see price breaks that go back to the before times. So here's my advice. Don't spend any energy stressing over market acceptance because price increases happen all the time. And buyers are not shocked by it. All of my corporate clients raise prices on a regular cycle. It's actually part of their business plan. I see a lot of small brands even before the pandemic who were working with a near to break even pricing model.
I think good food brands in particular struggle with the idea that a purpose-driven brand shouldn't focus on the profit model, but you should. You are making a living and providing jobs. You have my permission to be profitable. There is nothing wrong with that. So give yourself permission to have a profitable business and acknowledge that your products need to be at a fair price, and that's one that includes a plan for the longevity of your business. That said, a price increase isn't something you just turn on overnight. Not even my corporate clients flip a switch and prices go up. There's a right way to handle a price increase, and that's by managing expectations.
No one wants to get a bill that's higher than they were expecting so you need to prepare them for that change. Early in the new year is a perfect time for you to implement a price increase. And here's how you go about it. There are three steps to a price increase, planning it, communicating it, and then doing it. Do the work of planning and increase by first reviewing all of your costs from ingredients and packaging to labor or co-packing fees, storage, even case cartons. Then add a little padding to that number. You need to have some room in your pricing structure to allow for a little cost fluctuation or you'll be faced with this decision again in the near future. When you land on your new prices, plan the date they'll go into effect. Then make a list of all the channels that need to be notified and all the places you need to edit your price. Online: RangeMe, Fair, Pod Foods, Amazon, all the places you communicate pricing.
This will be your checklist for executing the increase. As you make that list during the planning stage, you should also capture all the names and contacts who need to know the price change is coming. You'll need that list of contacts for step two, which is communicating it. You can manage your customer's expectations by communicating your price increase early and often. At least one month before the plan price change, send them an email notifying them of the increase. Then send reminders. People are busy. They lose track of the details. Send reminders, but just don't nag them about. You may also want to include a note on your invoices that prices will be going up on January 15th, 2022, or whatever date you set.
It's just common courtesy to let them know it's coming. And that's managing expectations in a nutshell. So you've made a plan, you've communicated it to everyone on your list. The last thing to do is increase your prices, and that means everywhere. All your selling channels, all your published price guides, digital and print, in all the places in your accounting system. You want all your invoices going out with the correct new higher price starting January 15th, or whatever day.
Managing expectations around a price increase will work for your consumer sales too. Email campaigns offering them a last chance to buy at 2021 prices are not a bad thing to do. Yes, you may get a bump in product sales that are probably too low, but the goodwill built by giving folks a chance to buy now can help with customer retention.
So to sum it up, how you communicate to your customers about pricing sets their expectations. Running deep discounts creates a sense of urgency. Customers don't expect them to last so they hurry and make a purchase. And on the flip side, raising prices will not be a big deal if you set the expectation that an increase is coming. Managing customer expectations, it all comes down to communication. Your communications send signals to your customers about what to expect from your brand. So say what you're going to do, and then do it. It's that simple.
If you're working your way through a price increase and need some help communicating it, email me at email@example.com or send me a DM on social media. I'd love to chat. So take advantage of my free first half-hour consult. And that's a wrap on this Marketing Monday. Thank you for coming along.
Thanks for listening. And if you want to learn more about how to grow your own food brand, then click on Grow My Brand at vafoodie.com. If you're a lover of local food, then be sure to follow us. We are at @vafoodie on Instagram, Facebook, and Twitter. Join the conversation and tell us about your adventures with good food, good people, and good brands.