Friday, September 09, 2011

Business owners ready to take risks, but not to raise prices

The squeeze is on Canada’s entrepreneurs, as costs are rising but most lack the confidence to raise prices in return. Yet, as the economic slowdown grinds on, more of them are saying they are willing to take risks to grow their businesses.
These are the paradoxical findings of the latest quarterly American Express Small Business Monitor poll, conducted in late July-early August 2011. According to the poll of 720 Canadian entrepreneurs, 47% of small business owners are protecting their customers and employees against rising prices, hoping that the resulting loyalty benefit will offset the immediate financial hit.

Of course, they have other choices. Some 52% of business owners say they’d rather reduce overhead costs in general than raise prices, while 48% say they're cracking down on accounts receivable in order to improve cash flow (48%). Some 36% are balancing the books by cutting travel and entertainment budgets.

Only 20% of Canadian entrepreneurs said they were willing to reduce perks for customers, and just 18% per cent were willing to reduce perks for employees. Only 12% said they were willing to reduce staff wages or benefits.

When they’ve had to raise prices, 78% of entrepreneurs say they’ve taken steps to make those increases more palatable. That includes explaining the reason for the increase (61% of entrepreneurs), extending payment terms (18%) and offering discounts to customers who pay early (16%).

But here’s the rub. According to the survey, 54% of the business owners who have raised prices say they experienced little or no customer resistance.

It’s often been said that business owners are more reluctant to raise prices than their customers are to pay higher rates – and this could be one of those times.

Eric Nielsen, VP and general manager of Small Business Services for American Express Canada, says the survey findings point to a positive strategy for business owners feeling squeezed. “The most uncertain of times can create the opportunity to be innovative and adopt new pricing strategies,” he said in a release. “Business owners are having success when they support the new price points with tactical customer communications explaining the rationale for change, or strategic enhancements to their service experience.”

(You might also try a trick I learned from a friend in retail. When margins are tight, raise the prices on just a few of your offerings. Choose those that are hardest for customers to compare – say, on custom packages or unique services that your closest competitors don't offer. Be prepared to offer a compensatory discount if customers complain – but experience suggests they’ll barely notice.)

Why are so many businesses feeling the pinch? According to the Amex survey, during the past year business owner have struggled with above-normal price increases in motor fuel (78%), heating oil/natural gas/electricity (40%), travel (37%) and insurance (34%).

A full 68% of business owners say they’ve also been hurt by suppliers’ price increases. In fact, 51% have switched to competing suppliers with lower prices as a way to mitigate the impact.

The goods news overall: 74% of entrepreneurs believe their companies are financially strong enough to weather another recession. Nearly half (47%) report an improvement in their business’ current financial position, which is a 14-points improvement over last quarter (33%).

Finally, more (28%) say they are willing to take risks today than they were three months ago (22%). And 37% indicate that growing their business is their No. 1 priority, up six points from last quarter (31%).

So go ahead and raise those prices. Respectfully, of course.


Akhilesh said...
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