How to Know When You Should Change Your Product’s Price

Setting prices is one of the most vexing challenges for retail marketers. On the one hand, too-high prices can ward off customers, but on the other, setting them too low can cause misperceptions about quality. Retailers, therefore, use price-setting strategies like cost-plus and value-based pricing to help determine what price best suits their product.

However, pricing is never set in stone. Inflation could force you to raise prices to keep up with costs, or cost-saving measures could help you lower them. Markets, conditions, and expenses change, and your prices must, too. But when do you know it’s time to reconsider your pricing strategy?

In this article, we will discuss some of the major indicators that you should rethink your current pricing. Increased expenses, competitive pricing, and shifts in demand are some of the many issues that impact price strategy. Changes in conditions, consumer behavior, and overall market forces can show you when to set new prices.

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Your Expenses Go Up

One of the most obvious signs that it’s time to raise prices is when your bills start increasing. Inflation, higher wages, and raw materials shortages are currently impacting business revenue around the world. In response, many companies have raised their prices to regain their profit margins. So, if you notice that you’re spending more each month to keep up with costs, you may need to increase profits to compensate. If you need to make the tough decision to raise prices, then you should use a cost-plus calculation to determine your current margin. Then, you can determine how large of an increase you need to stay afloat. This will help balance your need to profit with your customers’ desire for low prices.

Your Competition is Charging More (or Less) than You

Another way to see whether you need to reevaluate your pricing strategy is by looking at your competition. Smart retailers will consistently check in on competitors’ prices to see if they need to make adjustments to remain competitive. If your prices are substantially lower or higher than others in your market, then you need to research why that is. For example, suppose your competitors are selling new-model TVs for nearly 1.5 times your sale price. You discover that they’re using a certain marketing strategy to raise the perceived value of those TVs. So, using that marketing model, you can raise the price of TVs at your store. A substantial difference in price between your company and its competitors is usually a sign that you’re doing something wrong. A customer may see less value in a product you sell, or new strategies might allow you to add value to products more rapidly. 

Entering a New Market

When you enter a new market, you will often need to adjust your prices to reflect new costs and consumer bases. Suppose, for example, that a specialty retailer is expanding into mid-size cities. Although their current prices are acceptable to customers in high-cost cities like Los Angeles and Miami, consumers in Grand Rapids and Kansas City find their markups outrageous. So, to meet the demands of a new market, the retailer will need to adjust their prices to appeal to local customers before opening. Similarly, a convenience store that opens in a more affluent area of town may discover that they can charge more for their products. As your business expands into new frontiers, you should ensure that your goods and services are priced correctly to be acceptable in that market.

New Customer Feedback

Sometimes, you may need to change your price in response to new feedback from your customers. Comments about cheapness or low costs might indicate that you can set prices higher without impacting sales. On the other hand, complaints about quality and overall value tell you that your product might be overpriced. In that scenario, you would need to either increase the quality or added features at your current price, or you must lower it to match the item’s new perceived value. Changing your prices based on customer feedback is also a great way to demonstrate to your consumers that you take their input seriously.

Constant Sales and Promotional Offers

Sales are a great way to boost foot traffic and clear out inventory. However, with promotional marketing, you can have too much of a good thing. Suppose that a high-end retailer saw a dip in sales five years ago, so they began running a series of 40% off and buy one, get one free promotions. This measure was supposed to be temporary, but now, it seems like your product is constantly on sale. In this case, you would need to survey your customers to see why they don’t buy full-price, and you would take that feedback to increase your quality or lower prices for good. If you need to constantly run promotions to get people to buy your product, then you may need to reduce your price.

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Your Business Can’t Keep Up with Demand

Speaking of too much of a good thing, an increase in demand might also be an indicator that you need to adjust your pricing. Climbing sales are often a cause for celebration. However, if your business can’t keep up, then you’ll end up with unhappy clients and strained resources. Raising your prices can be a smart move in this scenario. Higher prices will temporarily reduce demand while maintaining revenue, giving your company time to grow. Furthermore, if your product or service is in high demand, then your best customers will likely be willing to pay more for it. Raising prices can also generate more capital for resources that you need to expand, such as additional hires and a larger warehouse space. 

Changing Business Objectives

Finally, you may want to adjust your pricing to reflect your company’s changing objectives. These can be small-scale changes, such as adopting a new brand, or large-scale changes, such as a new marketing strategy. A common small-scale change that impacts item prices is transitioning between seasons. For example, retailers want to sell Christmas items at a markup for the holiday season, a time when consumer spending is high. However, after the holidays, the value of seasonal items decline. Instead of letting these products take up valuable shelf space, most retailers will mark them down in order to transition to the next season.

Large-scale changes also heavily impact pricing strategies. A moderately priced boutique will need to raise prices if it wants to transition into a high-end brand. Likewise, a specialty retailer that wants to gain more mass appeal will need to adjust its prices to fit the needs of a broader market. Price adjustments can be a strategic tool when retailers wish to make major changes to their marketing strategy.

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