High Prices: How Should Businesses Respond.

A training part of the Enterprise Uganda's Business Recovery Series that was put in place with the goal of encouraging and guiding entrepreneurs on how to recover from the economic challenges caused by the Covid-19 Pandemic. It is a series of courses taught by business leaders and shakers that will assist you in rebuilding your business following COVID-19. The weekly 1-hour online courses will provide entrepreneurs with actionable advice that they can implement right away.
20 Apr 2022

How to Deal With High Prices: The Business Owner's Guide By Charles Ocici - Executive Director Enterprise Uganda

While there’s no way to completely avoid the cost pressures inherent in operating a business, there are steps you can take to navigate them more gracefully. Whether it is from the increased minimum wages in some areas or the rising costs of raw materials, virtually every business faces the challenge of dealing with high prices. Unless your company is an extremely small operation with negligible overhead costs, you will need to adopt strategies that reduce the impact of high prices on your business and its customers. In this article we will explore various ways you can deal with high prices and keep your business profitable while doing so.

Be Proactive
As soon as you know the direction of prices is trending upward, it makes sense to put contingency plans in place. This can include increasing the prices of products or services now to offset expected increases later. If you’re not yet at the point where you can raise your prices, you have to make other changes in your business. This includes re-thinking your product mix to include fewer products with higher profit margins, while reducing the number of low-margin items in your inventory. Another way to be proactive is to make changes to your supply chain. This can include looking for ways to improve your relationship with suppliers, signing long-term contracts for key inputs, or finding less expensive alternatives to the materials you currently use.

Raise Prices When Costs Increase
A sudden increase in the cost of your company’s raw materials or utilities is a pain, but it also provides an opportunity to increase your prices. While you don’t want to do this too often, if the cost of something that goes into your product is going to increase by 10-15%, you can usually get away with raising your prices by about the same amount. As long as you make sure that customers are aware of the price increase, and you don’t do it too frequently, this is a good way to deal with rising costs. If you don’t want to directly raise prices, you can also offer customers store credit or a coupon towards future purchases.

Change Your Mix
As we mentioned above, many business face an increase in the cost of raw materials. But you can also face a drop in the cost of some of your inputs, like labor. In cases like these, it makes sense to change your product mix to increase the amount of lower-priced products and reduce the amount of higher-priced items. This strategy works best in a business with high fixed costs, like a manufacturing operation or a logistics company. You don’t want to change the mix of products sold by a service business because the mix is directly related to the services provided.

Lock-in Strategies
Another way to deal with rising costs is to seek to lock in the price of key inputs for a period of time. For example, if you buy paper from a particular supplier, you might negotiate a contract, locking in the price for a year or two. If the price of paper goes up, you’ll be able to offset the increase with a price increase of your own. And you will have the added benefit of not having to worry about price fluctuations as long as the contract is in effect. If a key input suddenly becomes cheaper, you don’t want to buy more of it than you need, which would lead to an overstock situation and a loss of profits. In cases like this, you can sign a futures contract, effectively locking in the current price, with a promise to buy the item at some future date.

Negotiate and Consolidate Contracts
As you negotiate new contracts and/or try to renegotiate existing ones, you should keep high prices in mind. You may be able to negotiate a lower price for a key input, like an insurance policy, or contract with a supplier who will provide the same output for a lower price. If you negotiate a contract with another business, such as a public relations firm or an advertising agency, you can also try to negotiate a lower price due to the high level of business activity or the potential for future business. Any time you’re able to lock in a lower price for a significant amount of future business, it’s definitely worth the effort to try to negotiate a lower price.

Don’t Forget About Merchandising
Finally, when dealing with higher prices, don’t lose sight of the importance of merchandising your products. Customers may have more money to spend, but they also have less time to spend it. You may be able to offset price increases by making your offerings easier to find and/or more attractive to customers. One way to do this is to change the layout of your shelves, windows, or online store to make the most of what you currently have. You can also improve the look of your products by taking good photographs and writing effective descriptions. And don’t forget about promotional gimmicks, like sales, coupons, giveaways, and contests that can make your products more desirable.

Businesses can’t avoid dealing with rising prices, but they can minimize the impact by being proactive, raising prices when possible, and changing their mix. Strategies like these can help you keep your product or service affordable to customers while maintaining profits. However, it’s important to remember that you can’t completely ignore increased prices. You will have to deal with higher prices somewhere, and you need to find ways to offset that impact on your business.

You can watch the full interview on the Enterprise Uganda YouTube Channel: https://youtu.be/CTV-CZU7jU4

Note: The Enterprise Uganda Business Recovery Series Zoom Sessions are conducted every Thursaday of the week. 


Mary Odongo

Acting Managing Director | GEN Uganda

Mary is the Acting MD responsible for establishing GEN Uganda. She is a fellow of the Association of Certified Chartered Accountants UK. She has … More