Raising prices is always tricky. We want fair prices for our products and services, but we don’t want to lose customers as a result. It makes for worrisome decisions for all dealers. So when and how do we do it?
With a right plan, anytime is actually a good time to raise prices. There’s no question the recession has forced us to hold prices down. But I believe we’ve let so-called experts get into our heads when they’ve declared the “new normal” means consumers are strictly price-driven. More importantly, however, is the fact that all businesses have to raise prices at some point. Timing can be important, of course, but if the increases are modest and reasonable for the value received, customers are likely to be accepting almost anytime, if they even notice at all.
The truth is that the cost of inventory, payroll, taxes, regulation, overhead and so many other variables makes raising prices inescapable. As we are now generally heading into better economic times, we should also be looking at the opportunity to do what’s necessary with our pricing. To that end, the federal Small Business Administration offers some excellent tips worth considering on the best way to accomplish price increases without losing customers:
• A pricing strategy should be a key part of every dealer’s business plan. But, more often than not, we think of our business planning as a one-time or annual occurrence. It’s shouldn’t be when it comes to pricing. A good strategy calls for actually reviewing pricing in various departments at least quarterly, perhaps even monthly in some instances. It’s an investment of time that can help better manage cash flow and, especially, profits because it will signal when we need to make adjustments due to wholesale prices, competitive factors, market outlooks, taxes and regulatory burdens and other costs of doing business. Not having a consistent pricing strategy can cause us to wait until it’s too late.
• Crafting a pricing structure might call for some new thinking. Many of our prices are directly influenced by our manufacturers, but most are in our wheelhouse. In particular, service, parts and accessory departments are very flexible areas to examine. If you fear your customers might not step up to the bar for a direct price hike, planning a restructure by packaging or bundling, for example, could get it done. Cross-selling can be an effective way to increase sales and prices by offering related services or products while focusing on the needs of the customer. Offer a second or add-on service as part of a bundled price. I don’t mean undercutting your margins but, rather, introducing the customer to additional services that enhance their hassle-free enjoyment of their boating time. To do it well takes crafting a plan the dealership team can follow and, then, regularly measuring its bottom-line success.
As an alternative to directly raising a price, selling more can come from using a multiple-price-points strategy for essentially the same product. We see this in many retail and, particularly, service businesses. The strategy in this is that the customer will often opt for the higher (and more profitable) end of the tier. I lived it every morning at a coffee stand in the Miami International Boat Show — a coffee was $3; coffee with a shot of vanilla syrup was $4; coffee with Amaretto and cream topping was $5. Tempting? Yup, I shelled out the $4 every morning. The low, medium and high pricing and the related value was clear and it was up to me as the customer to decide what I wanted. The price customers are willing to accept is directly related to value they believe they’ll receive from the purchase. I expected a better coffee experience for the extra buck. And it’s not hard to figure the margin was higher for the coffee vendor in the upper tiers.
• When desirable, give customers advance notice of a price increase. For example, if you plan to raise pricing on some services in June, let the customers know in May. This can do two things: Allows you to promote signing up for the service now, before the price goes up; and let’s customers become accustomed to the new prices.
• Have a game plan to deal with customer pushback. We shouldn’t lose sight of the fact that it’s our right to raise our prices. However, we should be fully prepared to explain, if necessary, why we’re raising prices. Just citing the old “cost of business” reason isn’t good enough. The explanation should include positive factors such as increased value to be delivered for the price, investments made in the latest equipment to better maintain the customer’s boat or new products added for the customer’s convenience. As backup, if there is some pushback, the option to offer a discount coupon on the new price or to add something extra included in the new price is always available as a selling tool.
If you don’t have an active dealership pricing strategy, there could be no better time to start one.