In times of economic uncertainty we tend to focus on reducing our cost structure and keeping our prices low so that we don’t lose market share. While I advocate that businesses should always contain costs, I also advocate that they should be aware of their pricing structure and terms.
Over the last couple of years there have been companies that have been raising their prices and changing their payment terms to increase their revenue and market share. Over the last two years I have walked into Starbucks and paid more for a drink than the time before. Each time that happened I noticed the price increase was about 8%.
The next example is Fedex. Over the last three years, Fedex has consistently increased their shipping prices at least three times. In 2009, they increased their rates by 6.9%, and 2010 and 2011 by 5.9%. While it may have been due to an increase in fuel costs, or in their internal business structure, they did not hesitate to increase prices.
In both the Fedex example and the Starbucks example, I speculate that not very many customers noticed the price increase, nor did they change their buying habits because of it.
The last example, and maybe best of all is Disneyland…”The Magic Kingdom”. Living in Southern California I know many people who have annual passes to “The Magic Kingdom”. Over the last couple of years Disney has not been shy about increasing prices or changing their payment terms. More people have annual passes than ever before. So, what have they done? They increased the cost of the annual passes and have allowed guests to pay for the passes over a period of months. So, in effect Disney has made the cost of entertainment affordable by allowing their customers to pay for the passes over 12 months, and they have guaranteed their cash flow from that sale for the next 12 months.
Here is an example from the information on their website. A deluxe annual pass is $379 – for a family of four that would be $1,516. In the current economy most middle class families aren’t parting with that much disposable cash for entertainment in advance. So, Disney allows a down payment of $80 per pass and then monthly payments of about $25 per pass. Most middle class families of four are able to afford $100 per month for Disney passes much better than a one-time charge of $1,516. So Disney has increased their prices and spread that cost over 12 months so that the offer is even more attractive than it was before.
Now on to your business…. What have you done in the last two years to increase your prices and make your offer more compelling to your customers?