There has been a spate of articles recently providing advice to businesses able – or, at least wanting – to raise prices as the general business climate has seemed to be improving. However, none of those I have read have addressed the competitive issues one must think about when comntemplating an upward move. It is worth doing.
For example, let’s assume that you and your prime competitors are priced equally at the point of sale. What will your prime competitor do if you raise your price by 10% at retail? Will he follow suit? Perhaps he will only come up half-way, thus end up underpricing you. Are you happy? Will the added profits you anticipated fail to accrue as your revenue falls in light of his undercut? Can you then cut back to his level…. should you?
The point I want to make is not to provide solutions to competitive responses a la the example above, but to advocate doing some simple planning in advance to project what your increase would yield under differing reactions by your prime competitors: if he matches you; if he holds his current price; if he only goes half way and your volume is affected; and so forth. Assume and assess what you would do if the situation were reversed.
Today, there are simple models available to assess all such variations in advance and, while they will cost you a bit of money to employ one or two, the long run benefit is worth the upfront price.