It’s Time to Get Yours!
In my opinion, Alan Greenspan has done a wonderful job fighting the battle against inflation and recession, and is trying to maintain an economy that, for the most part, works for all of us.
But I’m willing to bet he doesn’t share my feelings about increasing prices.
The tire industry has long found it difficult to successfully raise prices. Market pressures, outside economic influences, and dealer complaints about "competitive" matters have conspired to erode past price increases almost before they were announced.
Tires are true technological marvels, but what we collectively charge and receive for them has severely diminished the value of the product in the eyes of end-users. In short, we haven’t done a lot to help ourselves.
The only good news to come from last year’s recall was the added consumer attention on tires – and improved knowledge about tires – made it substantially easier for your customers to accept higher tire prices. Because people buy new tires so infrequently, compared to, say, new shoes, I truthfully doubt any price hike is recognized.
With the exception of some softness in truck tire pricing due to the serious downturn of the trucking industry, the price increases initiated earlier this year have stuck. Unlike some in this industry, we’ve all known that for months.
And now we see virtually all tire makers going for another round of increases. For the continued health of this entire industry, these increases, too, must stick. It is imperative, in my opinion, that we rebalance the relationship between technology-value and cost-value. To do that means everyone has to earn a better dollar for the product we develop, produce, deliver and service.
Now the question is: Are you earning a better price for what you add to the chain?
There are three roads to take. You can absorb the manufacturers’ increase yourself, reducing your own profit. You can pass the increases along to your customers, and make a small fraction more. Or you can bump prices to cover the tire maker hikes, and then add another point or two for yourself.
I believe it’s good business and vital to business health to raise prices regularly when necessary. It doesn’t hurt to keep customers trained to expect an occasional increase for a product they depend upon – whether they recognize it or not. If you don’t, you’ll be allowing the falling profits from your products and services to undermine the value of your company.
Many businesses forgo price increases altogether, or simply put them off as long as they can. Then they find themselves taking desperate measures in desperate times playing catch-up. Granted, if sales are strong you won’t feel the pain for awhile. But don’t be fooled into utopia, because while you’re sitting back in your easy chair, three things will happen:
- Profits will erode because hard costs go up. Upward shifts in hard overhead costs can sneak up on you while you worry about discretionary expenses. Silent hard cost killers like payroll, rent, utilities, business insurance and taxes all go up, and can have a deadly compounding effect over time. Discretionary costs are usually the first things dealers look at when downturns come, but always with a knife instead of a price increase.
- Your income is a part of your company’s major assets. If you go to sell your business or head to a bank to get a loan, your profit margins will be put under a microscope. Business buyers and banks don’t like to see weak profits and will shy away from them – and you – quickly.
- Even with a watchful eye on all expenses, you’re damaging your business in other ways. Perceived value ends up taking a beating. Customers equate quality with cost. I’m not suggesting you become the price leader, but don’t find yourself being the low price leader. You can never make it up with volume; and as an old boss once told me – "you can’t eat marketshare."
Passing increases along to the consumer isn’t the end of the world. There are many ways to explain why your prices have to improve. Be honest. Talk about product quality and the value-added customer benefits you deliver. And be sure to place a premium on the services that you – and you alone – can offer.
Just don’t talk yourself out of a needed increase, or you’ll be talking yourself out of a healthy business.
I must admit there is one business operator that should ignore my advice on raising prices: the U.S. Postal Service. Those guys are merciless!