Price escalators: Note – this article was originally published by Ranson Pricing on 29th June 2016. You can find the original article here as well as numerous other informative articles.

 

 

We live in a world where inflation is a fact of life. Our suppliers increase their prices, shrinking our margins, and our customers enjoy increases in the nominal value of their income, increasing their willingness to pay. But there seem to be few organisations out there which use a ‘price escalator’ to slowly but surely increase their price levels. There are four good reasons why you should do this.

 

Small increases through prices escalators add up over time

 

If you increase your prices by 1% every six months, then after five years your prices will be 10.5% higher than if you had not changed the prices at all. During those years you will enjoy the benefits of slightly higher revenues, which can be reinvested in your products, services and pricing processes to secure a prosperous future for your business.

 

Small changes through price escalators are less likely to be noticed by competitors

 

Imagine bumping your prices up by 10.5% at once. Your competitors and customers would surely notice and most likely the competitor would be able to hoover up business as a result. By increasing prices slowly but surely, your actions will help to instill market discipline in both competitors and customers.

 

Small changes are less costly to correct if things do not go according to plan

 

If you had to raise prices by 10.5% all at once and things did not work out, it could be very costly for your business in terms of lost revenue, brand damage and customer trust. But if you increase prices by just 1% at a time, if things do not work out then you can change things back with no harm done.

 

Small changes can be applied across your product range and tailored accordingly

 

You can also happily leave a price increase in some products while removing it from others. Products might include bundles of different items as well as goods and services sold individually. So the price escalation method is extremely flexible.

 

Check out our recent blog on implementing pricing policy and the impact on FMCG in retail price management.