After two years full of challenges, from Brexit to the pandemic, the UK’s cost of living crisis is perhaps still the biggest challenge facing business owners so far.
Retail can be resilient and businesses, especially smaller retailers, have proven their ability to pivot repeatedly over the past two years. Currently, every business owner has to make a decision and another form of resilience is required. How much can they raise their prices versus how much must they absorb the increased costs?
Major retailers are developing various strategies deploy in order to protect their profit margins while retaining customers – they will cut staff, cut suppliers and adopt ‘narrowing’ tactical. With less flexibility than the big players, how can small business owners counter price increases that impact their bottom line? Here are five suggestions.
Examine profit margins
Retailers should double-check their profit margins, especially if they haven’t looked at them in a while. Knowing, to the nearest penny, how much it currently costs to buy or create their products is vital. They should check each invoice, as price increases have taken place on most items and services.
Look at the costs
If raising prices is not an easy option, business owners should investigate if they can reduce the cost of their product without compromising brand or beliefs. Small businesses should check their inventory levels – cash tied up in excess inventory at times like these is an area of their business that needs to be addressed.
Do you know your customer?
Keeping their customers at the heart of the business always helps retailers through the toughest times and, of course, securing their loyalty in the future. Small businesses in particular shouldn’t be shy about talking to their customers about cost-of-living pressures. Retailers can test all price increases to better understand their customers’ wants and needs, and then only increase prices gradually.
Once business owners have carefully considered their situation, it’s time to consider changes. Not simply price increases, but perhaps offering an alternative product with a nicer profit margin. Steph Dunleavy, General Manager of Jewelery Soul Analysis shared that the choice to absorb the costs had been difficult but forced them to “become more innovative” and as a result, they launched new jewelry collections “using different materials, such as sterling silver (instead of our usual stainless steel), which we charge in excess of £35 per piece”.
“This has allowed for better profit margins but, more importantly, has also opened up more opportunities for a different type of consumer – one who only wears precious metals and prefers to spend more on jewelry.”
To be clear
Authenticity and honesty are important to consumers – especially with bad news – so be clear. Tell customers that prices are going up and avoid other terminology when communicating. Customers continue to buy and spend, but trust is low, so communicating value to customers is crucial – do it often and consistently.
James Leinhardt, CEO of Levitex – the ‘Sleep Posture Experts’ said “we’ve been very honest and open about the price increases with our customers, communicated it via organic social media and email, and the reaction has actually been translated into increased sales.
There is no single answer. However, retailers who give the time to review and analyze exactly where their costs and profits are right now have more power. Managing this roller coaster of profitability and distinguishing between what they should charge and what their customers pay will be critical for business owners navigating 2022.