Is It Time to Raise Your Prices?

One strategy that was rarely feasible in the low-inflation environment, however, was increasing prices.

“If you walked into a retailer and said you were taking the prices up, the retailer would be just furious and they would punish you for doing that,” says Tim Calkins, a clinical professor of marketing at Kellogg. “An honest-to-goodness, old-fashioned price increase hasn’t been on the table for so many companies for such a long time.”

This is rapidly changing. Thanks to supply-chain bottlenecks and a tight labor market, the costs of doing business are going up. And that means that, for the first time in a long time, many companies are—or should be—thinking about raising their prices.

But by how much? Enough to cover increased costs—or more?

This actually poses an interesting dilemma. “A lot of people running brands these days have just never been in an environment where you take a price increase once or twice a year on a very regular basis,” says Calkins.

So what advice does he have for these managers? What do brands need to understand about how to thrive in a world where inflation, a least for now, is on the upswing? Calkins offers four tips.

Realize That Some Inflation Is Not a Bad Thing

Brands and brand managers must learn to embrace the more inflationary environment.

“Inflation gives you flexibility to do a lot of things. This will make your jobs much more interesting and provide a lot more opportunities,” says Calkins.

After all, it’s not particularly fun to brainstorm ways to cut back your marketing budget year after year. It’s far more invigorating to consider an environment where you have more money to play with and a broader set of tools at your disposal for continuing to grow your brand.

So “don’t be a hero” and try to keep your prices static, says Calkins. There’s very little to be gained by not increasing your prices.

Move Sooner Rather Than Later

In many categories, if you wait too long to increase your prices, you’ll be hit with rising costs without a corresponding increase in your own prices.

While airlines are able to change prices dynamically, most producers of, say, consumer packaged goods are not. So if a company such as Kimberly-Clark wants to change the price of its Kleenex products, it could certainly do so—but “it can easily be three months or six months before that price increase shows up at the shelf,” says Calkins.

For instance, many retailers and distributors have rules requiring advanced notice for any price increases—and once they have notice, they might decide to fill their warehouses with additional inventory purchased at the lower price.

“So when you think about the actual product hitting the actual shelf, if the retailer or the channel partner buys three months of product, and the price increase wasn’t effective for three months, well that’s six months!” says Calkins. “It’s a very slow process.”

Think Expansively About Pricing

As you begin to think through how you will move your prices, be sure to consider the full range of opportunities now available to you.

“Let’s say you’re on a product and your costs went up 8 cents a box,” says Calkins. “Well, okay: What sort of a price increase would you want?”

You could simply pass along those costs to consumers and increase your prices by 8 cents. But given how long it will take for your price increase to kick in, and the rate of inflation, should you actually aim for a 10 cent increase? Should you go for 12 cents, in order to generate some additional profits? Or 15 cents, and consider plowing 3 cents back into in-store discounts?

“Or maybe it should be 20 and just go for it, because once we’re moving, let’s move it,” says Calkins. “You’ve now got the opportunity to think about reinvesting in the brand, strengthening the brand, and spending on things you’ve always wished you could spend on. And when you think about that, all of a sudden, it opens your mind.”

Watch the Competition

Finally, Calkins advises keeping your ears to the ground: What are others in your industry doing—or broadcasting that they will do in the future?

“Right now, companies are changing prices; they are very aggressively talking about it. Everybody is communicating to everybody, and you want to be hyperaware of what people are saying so that you don’t get caught underpricing or overpricing other brands in your category,” says Calkins.

He points to Procter & Gamble as a company that has been extremely outspoken about its own plans. “If you look at their latest statements, they are very clear that they are taking prices up, and they’re taking prices up a lot. There’s complete transparency there. And I think partly it is Procter & Gamble setting customer expectations and setting retailer expectations, but I think also as an industry leader, Procter & Gamble wants everybody to know … it’s time to move the prices up.”

Of course, not all industry leaders are being quite this transparent. Still, what pricing moves do you see in your industry? And what are other companies communicating to their investors and partners? Now is definitely the time to stay tuned.