Back in June, Inc. asked “Is It Time to Raise Prices?“, which discussed the differences between cost-plus and value-based pricing, as well as economic value and perceived value. Pricing is often an afterthought for small businesses, who tend to use cost-plus pricing, or doing a quick adjustment from a competitor’s offering. Pricing is sprinkled on the business afterwards, not baked in. It’s also hard to segment as a small business– it can be tricky enough to focus on one segment. I wrote a letter commenting on the article, which is available here in highly edited form.
Perhaps more interestingly, Norm Brodsky follows up on this article as well in his column. He argues against price hikes, suggesting that pricing restraint while your competitors stack on surcharges can earn customer loyalty. He also suggests finding ways around cost increases. This certainly makes sense, regardless of the pricing environment. However, sometimes higher costs are unavoidable. In these cases, it makes sense to discuss the issue with customers and work with them to avoid higher costs. Brodsky is right that simply passing through cost increases is a bad way to go. Customers don’t care about your costs, they care about your value. So you can only use the cost increase as an occassion to raise prices if you’ve been undercharging relative to value.