This article are provided for information purposes only, and are not intended as legal advice.

Business strategy – when do you increase prices?

March 24th, 2009

If you are in a service industry which is specialized in a particular area, you need to price your services at what the market will bare.  I had a client who was custom fabricator and repair shop.  He only had one competitor. His hours were from 7 am until 1 am and he was not making much money.  Finally, he increased the prices and amazing, no customers left.  He went from losing money to making money.  After more discussions, he raised prices again, and no customers left.  The customers had no options, you had two places to go, both places were over worked, it was difficult to find staff to work those hours.  The customers had no where to go. 


If there is no competitor or you are carrying on a near monopoly of the market, you can set the prices for the work.  If you set prices too high, customers will go further to get the same services.  There is an optimal price point where it is not worth to travel great distances to another place 100 km away to get the service.


I am aware of a small mining town which is located three hours from the closest city.  The grocery stores charged high prices for the goods because they had no competition.  As prices climbed, the consumers became angry. Eventually, the mining company started to hire buses to travel the three hours to the city for the employees to go shopping. Eventually, the sales started to dry up in the mining town and the prices magically declined. 


Is it wrong to have high prices? – no, that is capitalism however high prices and excessive greed are two separate items.  There is a fine line where greed starts and reasonable prices meet.  You have to make the decision where that line is. 


This proves that you can’t get away with any price.  If they get too high, competition will come in or they will seek alternatives to get the same products.  If they go elsewhere to save money, will they ever come back to you even if you drop your prices?  You may have lost the business and it may fail because you pushed the limit and were excessive in your prices.

Filed under: Business strategies — Gary Landa @ 9:35 am

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