What happens to your product or service when your costs are going up and your profits are going down?
It's obvious that you can't sustain the losses for long and your prices will have to rise.
But how to do it without driving away customers?
Writing in The Wall Street Journal, marketing experts say some customers are more sensitive to prices than others. Marketers should target discounts and coupons to those customers. They can also consider offering different, lower-priced versions of their product.
The discounts work because price-sensitive people still buy the product, though at a lower price, and those who aren't so sensitive about pricing buy the product anyway. It averages out to be more income overall.
Kusum Ailawadi of the Tuck School of Business at Dartmouth, writes that it is a mistake to think customers don't pay attention to prices. They put a lot of emphasis on special deals like coupons or sales. It's one reason why raising the price and offering deals is a much smarter move than eliminating coupons and offers in order to save the store's money, Ailawadi writes.
There is also a psychological component to promotions. People who make the effort to clip coupons or mail in proofs of purchase feel like smart shoppers and smart shoppers are happy shoppers.
One mistake companies make that everyone notices is the cutback on the product itself. The most notorious example is the candy bar, which seems to shrink with the economic times. Consumers may experience this as a bit of a ripoff.
Also consider which prices in your line to increase.
If you have vegetables and ice cream, which should you increase? Ice cream, says Paul Farris of the Darden School of Business. Vegetables are a staple people have to buy. Ice cream, cookies and the like are indulgences and people are less price-sensitive when they buy them.