Retailers: Maybe It's Time for a Price Hike

When I worked in the theme park industry, we were always looking for ways to maximize profitability (yes, theme parks trump even movie theater chains for ridiculous prices). One year, someone took a look at our admission prices and thought, “Hmmmmm, if a ticket costs $26.95 and we changed that price to $26.99, what would that do?”

A quick calculation of a 4-cent increase per ticket multiplied times the 2.5 million guests we saw each year led to $100,000 in pure profit. $100,000 just by increasing prices by 4 cents. And a customer wasn't going to care whether they were spending $26.95 or $26.99. In fact, they weren't even going to notice.

If you're like many entrepreneurial retailers I work with, then you know how difficult it is to eke out a profit. In fact, many retailers find that once you pay for your goods and deduct shipping costs, your margins are already below 50 percent -- and that's a recipe that won't bake a cake.

The only option to get your margins higher and actually earn a profit is to raise prices. I know that's something you don't want to do. After all, the store across town is selling many of the same goods you're selling, and if you raise prices, then customers will stop shopping with you and start shopping with your competition.

So how do you raise prices discreetly?

1. Take it to 99. Just as with the theme park tickets price example above, raise all your prices to $xx.99. This works especially well for items your competitors might be carrying. Think about it, you may sell 500 units each month of various products. And let's just say your average price ends in .50. By bringing that up to .99, you'll add $3,000 in pure profit each year to your business.

2. Raise prices on competitive items, but do it within reason. Even if your cross-town rival is selling the same goods, you can still raise prices on some items. If you're both selling a pair of shoes for $74.99, go ahead and raise it to $75.99. The one-dollar difference raises the price by 1.3 percent. That's nothing. Your customers aren't going to care about such a small difference, so long as it doesn't become a habit.

It's still best, however, to keep prices the same on your most popular items. Take the price hikes on more obscure items where customers won't be as likely to notice.

3. Go wild on non-competitive items. Retailers sell a lot of items exclusively. While you may share several brands and products with your competitors, you surely don't share every brand. So take price hikes on those brands you sell exclusively. As for all those little add-on items sprinkled throughout the store and at the cash wrap -- well, this is your biggest area of opportunity. If the value is there, then raising a price from $5 to $7 isn't going to matter since the customer has no point of reference. The key is to ask yourself how far your customer will be willing to go.

And if you think this is taking advantage of your customer, think again. More and more retailers are marking their goods up 200 percent wherever they can. And that's because they can.

Shopkeepers be warned: Taking across-the-board price hikes is not the way to achieve the goal of creating more profit. You'll become known as more expensive than your cross-town rival -- and that will absolutely drive customers into the arms of your competitors.

Remember that this isn't about taking advantage of your customers. It's about raising your gross margins so you can make a little profit. It's just smart business.

How are you going to discreetly raise prices without turning off your customer base? Sound off below and let's get a conversation going.

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