Businesses shielding customers from price hikes

Businesses are attempting to shield customers from price hikes by absorbing costs where they can, according to government figures.

More than one third (36 per cent) of businesses absorbed costs because of recent price rises. But 29 per cent passed those costs on to customers, said respondents to an April 2022 survey by Office of National Statistics (ONS).

Mixed picture

The latest survey is at odds with an early report by the British Chambers of Commerce (BoC). Those findings showed that three out of four businesses were increasing prices — as well as cutting costs and scaling back investment. In fact, one in five considered closing their businesses.

“Our research has shown that businesses were drowning in rising costs even before the energy crisis began to bite,” BoC director-general Shevaun Haviland said. “This latest data reveals that companies are now also under extreme pressure from spiralling gas and electricity bills as well as increased wages.”

But the picture is mixed according to sector. For instance, 60 per cent of manufacturers in the ONS survey reported absorbing costs. That is up from 49 per cent in March 2022. But half of those working in accommodation and food passed on price increases to customers.

Opportunities

Simply raising prices can damage customer relationships, warned the consultant McKinsey. 

Instead of focusing solely on price, businesses can adjust their terms of service. For example, manufacturers could lengthen product deliver times to make production schedules more efficient, it said.

It said that some distribution companies had added surcharges for rushed deliveries or orders that fell below an agreed limit. In addition, businesses can opt to keep core products cheaper than less popular items.

“Adjusting prices based on customers’ willingness to pay and on product differentiation can help companies be thoughtful about their price increases now and beyond inflation,” it said. 

Communication is key

For those who cannot shield customers from price hikes, clear communication with customers is key, Catherine Erdly, host of the Resilient Retail Game Plan, said.

“Tell customers prices are increasing and avoid other terminology when communicating this,” she wrote in Forbes recently. “Customers are still buying and spending but confidence is low so communicating value to customers is crucial — do this often and consistently.”

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