When Did You Raise Prices Last?
My annual tour of casual dining restaurants is underway, and this week a restaurant manager told me that his location has not raised prices in about three years. When clients tell me this, it sometimes comes as a surprise. This isn't because holding prices flat is wrong. Following pricing the way Intellaprice does, however, I know prices go up more frequently than every few years in most cases. In addition, I work with clients who often seek guidance on increasing prices in the face of rising costs. And as a consumer, I'm keenly aware of changes in the price I pay for goods and services. So it stands out when a merchant tells me he or she has not taken price in years.
It would be interesting to survey people regarding their view of a company that's kept its prices flat for several years. What portion would say the business is benevolent, and what portion would call that business irresponsible? What portion would assume the company is losing vs. gaining profit? Depending on your views, such a decision could be foolish or it could be shrewd. If this was your restaurant, would you feel proud or embarrassed to make such a statement? It really comes down to the analysis underlying the decision. Having been in situations where I felt I undercharged a client, it's something I try to avoid for the health of my business.
I can't say this company is right or wrong since I haven't seen its numbers - though that would be fun! I can, however, provide a list of questions to ask when considering your own potential price changes:
- Which costs have increased and what impact does this have on profit?
- Are there non-price measures you can take to protect margins?
- How price-sensitive are your guests?
- When did you last change prices, and has an acceptable length of time passed since then?
- Will forgoing price increases - or decreases - be detrimental to your business?
- How much of a hit in profit can you take, and how much of the burden should you - or your guests - shoulder?
- Can you project the impact of price changes (and traffic, and volume, and trade-down) to assist in pricing decisions?
- Do you compete mainly on price, or do guests consider your quality, service or customer experience as the primary reasons for visiting?
- How is your brand performing in terms of sales and profit? Are any marketing initiatives resonating particularly well?
- How are your competitors approaching pricing, and do their decisions make sense? What results are they seeing?
- Are any operational initiatives in place to assist in improving profit if price increases aren't warranted?
- If you maintain prices, can you achieve company goals through non-price measures such as increases in traffic or ticket?
Some of these questions are easier to answer than others, and some are extremely difficult to measure. As you look at your business, the more analysis you can perform based on answers to these questions, the more justification you will have for decisions. It's not about whether you increase, decrease, or maintain prices; it's about the decision process you use and the results and understanding you achieve after making decisions. Pricing is an ongoing cycle that should be continually evaluated.