Are You Afraid Of Raising Prices?

by Paul Schlossberg
Posted On: 9/4/2019

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PAUL SCHLOSSBERG

Taking a price increase is one of the biggest challenges for almost everyone in our industry.

When you walk in to see a client to present a price increase, odds are you are nervous. Is this going to be enough of a negative to cause the client to seek a new provider?

Looking back a few years, when we were essentially 100% vending, operators had to sell a price increase to their client contacts. At that time we could only execute nickel (5¢) price moves. If we received a 1¢ per unit cost increase, clients were almost always unreceptive to permitting us to raise the machine price by 5¢.

Let's hope that you're writing your location contracts with price escalation clauses. If not, every cost increase you receive could become a point of friction between you and your clients.

Today's business is different, with a much greater proportion of micromarket sales. We can, if we decide to, use penny-pricing -- assuming we manage it by showing sales tax (when applicable) and then rounding the price to be presented in nickel increments. My advice is to always round it down to next lower nickel increment. And, with an increasing share of sales being cashless, the impact of penny-pricing can be easier to implement at locations.

We had an article, What's Up With Pricing? The Good, The Bad And The Ugly in the January/February/March issue of Vending Times. That was about the decision process and logic to set prices. After reading two recent news articles about pricing, the "how to" and "timing" of pricing were fresh in my mind.

A Wall Street Journal article on July 30 discussed pricing, " P&G Posts Strong Sales Even As It Raises Prices ." Procter & Gamble (and apparently lots of other manufacturers as well) minimized price increases for many years. The article went on to note: "After years of trying to stoke demand by cutting prices, P&G and most of its rivals switched course about a year ago and have been pushing up prices across a range of products. The moves have paid off as consumers have been willing to absorb the increases [1] , some of which were prompted by higher costs and have padded profits."

The second article was " Restaurants, Food Makers Find Consumers Are Willing to Pay Higher Prices " on August 5, also from The Wall Street Journal. It noted that food manufacturers and restaurants have been more aggressive in pricing moves. "Restaurants and food makers are seizing the opportunity to charge more, in part to cover higher costs for ingredients, transport and labor that many companies say they are facing. Restaurant prices have climbed faster than generally modest inflation rates in recent months, Labor Department data showed. Grocery prices are rising again after a long slump in recent years."

It seems that people ("consumers") are, for now, more receptive to accept higher prices. Overall, the pace and rate inflation has been relatively flat (less than 2%). Even so, if your costs are up, you should be thinking about what to do next.

Is it time for you to raise prices? How are you going to sell it to your clients? If you do move on pricing, keep careful track of unit sales before and after the price change. You'll find out quickly if your shoppers are willing to accept price increases. If you want to sell more stuff, be a shrewd and skilled manager of pricing.

Paul Schlossberg is president of D/FW Consulting, working with clients to merchandise and market products in impulse-intense selling environments, such as vending, onsite foodservice and convenience stores. Based in the Austin, TX, area, he can be reached by emailing to Paul@DFWConsulting.net, calling him at (972) 877-2972. The company is online at www.DFWConsulting.net