Photo (CC) by Ken Teegardin, on Flickr

Many small-business owners fear that an increase in prices will drive customers away.

This idea made the headlines in 2016 when New Jersey implemented a substantial gas tax increase making prices jump 10% or more overnight. Gas station owners were concerned that people will go somewhere else for cheaper prices or to other transportation alternatives.

While such a concern seems valid, research finds that moderate price increases are often perceived as more or less acceptable by consumers.

The case in New Jersey is less problematic for business owners as all businesses are faced with the same change. But what happens when you need to raise prices but your competition may not. Will people leave, our perception, or will they stay, quite often the reality.

First, you, the owner, must understand that it is not price alone but several factors that determine customer behavior in terms of where they shop. The first of these is how often we buy a product or service. The more often we buy something, the more likely it is that we will both recognize that the price has increased and perhaps have use considering a change.

Another factor is the cost of the item. Higher-priced items use a larger portion of our household income. This makes us, again, the more price conscious. Yet the type of item also comes into play. Sales of what might be considered vanity products will not see the drop in demand that other products might.

Price awareness also depends on how visible the price is to the consumer.  For this one, think about service stations and the billboards reflecting current prices. Price is highly visible and, because of that, we are more likely to be aware of increases, decreases and how you compare to your competitors.

Also, you must consider how other products can be interchangeable with yours. Gasoline is basically a commodity, meaning one brand is much like the next.

Things that help ensure your customers return to your store include habit. We tend to go where we have in the past.

Also, the customer thinks about the actual or perceived value of your brand. We all go to places where we like the service, the store, how we are treated, the feeling we get our money’s worth, etc. And we will continue to go back even though prices may not be as cheap as the store next door or the several stores we drive by to get to our favorite location.

Finally, there may be factors such as a desire to shop local or support small businesses can influence one’s reaction to a price increase.

All of these factors make it difficult to fully anticipate consumer reaction to price changes. And the good news is knowing price increases can be implemented.

So what can you do to make price adjustments less likely to send customers away?

• First, know why you are doing it and, when asked, have your thoughts gathered as to why you needed to make adjustments.
• Second, don’t surprise people especially if the increase will be significant in either dollars or percentages. Some owners even take advantage of it with a sale to encourage early buying. That can be a good idea but realize it will definitely impact your cash flow.
• Third, make regular adjustments. When people know you change your prices on a regular basis, the changes have less of an impact.
• Fourth, understand your own profit margins and what the data is telling you. Know what you need and how changes may affect your cash flow and revenue picture. This knowledge allows you to consider how, and even if, you implement a change.

As a small business owner, it’s important you not fear making a price adjustment. Pricing, it is said, is part science and part art. Mostly it’s knowing your customer.

Photo (CC) Chris Potter, on Flickr via stockmonkeys.com

What do these four things have in common?

• Keep up building maintenance
• Develop your online presence
• Provide good wages and benefits
• Establish a solid customer service program

Give up? Perhaps the article title gave you a hint. Each of these items has been shown to build your bottom line.

That’s correct. Spending money in these and other ways can bring in more than they cost.

And all of these influence customer behavior.

Now before you revise your budget and start writing checks, what is important to understand is that probably none of these methods is effective by itself. But together, you have taken steps toward establishing your brand and your identity.

How?

Building maintenance touches on the visual merchandising aspects of your business. This means having a clean, neat space. The windows are washed and the bathroom is spotless. This doesn’t just apply to the building but your product displays, cash register area, the floors and even rooms not available to the public eye. (Yes, your employees will talk about what goes on behind the scenes.)

Your online presence identifies your willingness to stay connected with your customer and those who might be your future customer. Having a presence shows you are staying current. And as you share your ratings, you begin to build trust and integrity in your business.

Good wages and benefits for your employees may be self-explanatory. You can’t afford to have a revolving door for employees if you want them to not only understand your business philosophy but to live it every day at work and in the hours they spend away from the business. And don’t forget that empowering the employee to take action is a no-cost way to move your business forward.

Having a solid customer service program also builds your reputation. Your program, among other things, should listen, apologize, respond promptly and offer a solution.

Small Business Week

As a business owner, you may consider many aspects of the business as an expense line item. Your task is to make those line items into revenue generators. Your goal is customer retention. One study found that a 5 percent customer retention rate could increase profits by 25 percent or more. Another study noted that more than one-half of customers would pay a 14 percent premium for good customer care.

These are just four examples. Think of what you might be able to do if you make a line-by-line study of your expense items.

So you have your task: Turn your expenses into revenue through the message you send.