With pressure on rising costs some small businesses are looking at increasing prices in order to stay viable. But is this prudent when consumers are constantly being bombarded with sales and special pricing on nearly every possible item they wish to purchase . If there are no more ways to cut costs, and in fact they are increasing, there are only two options left. Increase prices or increase volumes sold Having said that, there is no guarantee that either of these options will have the desired effect of increasing the bottom line.

Looking firstly at increasing sales volume, forgetting that there may not be a demand what other issues are there? Well, more stock is required, possibly more sales staff, more holding room for stock, more advertising to bring in customers the list goes on. This in turn puts pressure on cashflow. How is this all to be paid for when cash is already tight.

This then makes the alternative of inceasing prices attractive. But how to do this without upsetting customers? The following extract of an article in Entrepreneur.com reveals a strategy for increasing prices

Many businesses blame higher overhead, including steeper manufacturing costs and employee wages, for their planned price hikes. For example, Chris Zane, owner of Zane’s Cycles, a bike shop in Branford, Conn., expects to raise prices between 6 percent and 7 percent in 2012, because of higher labor costs at manufacturing facilities in China.

But he says customers will likely complain because they don’t buy bikes very often and remember when his prices were lower. “‘Now I have to spend $500 plus to get something similar?’ is a common objection we hear and have to overcome,” he says.

Zane, who has raised prices numerous times in recent years, is upfront with his customers. “Gas prices, airline tickets, as well as bikes, have gone up over the past few years, and when we discuss that, it seems to sink in,” he says. To cushion the impact of the price hike, he promises top-notch customer service–lifetime free service, a lifetime parts warranty and 90-day price protection. If a customer makes a purchase at Zane’s Cycles and then finds the same item elsewhere at a lower price within 90 days, Zane’s will refund the difference, plus an additional 10 percent of the price difference.

So Zanes approach is to increase prices, but with a twist. He has something to offer customers in return including full service and a price guarantee. This is a slick strategy, is it one you can use?

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