Business guide to Coronavirus
Will changing your prices help or hinder during COVID-19?
The economic impact of COVID-19 will be felt for months to come, and many Australian business owners may have to change their strategies to stay afloat.
With the Australian Bureau of Statistics (ABS) revealing that nearly three in four (72%) businesses anticipate reduced cash flow over the next two months, is now the right time to change your prices?
Should you change your prices during a crisis?
There’s no black-and-white solution that suits every business. Whether or not you decide to change your prices will depend on your cash flow, the industry you operate in, your business model (physical or digital store) and a range of other factors.
However, before we dive in any deeper, the first thing to remember is that price gouging is illegal and could have serious consequences during the pandemic. The Australian Competition and Consumer Commission (ACCC) has set up a dedicated COVID-19 Taskforce to crack down on businesses that are taking advantage of customers during these challenging times, so it’s important you understand the legalities around changing prices.
That doesn’t mean you can’t change your prices in light of COVID-19. In fact, it may be your best bet to keep your business operating and your employees on the payroll. Let’s explore your options.
Signs you should change your prices
There are a few key indicators that may mean it’s time to change your prices. These include:
- Cash flow inconsistency: You are selling more products or services but your profits aren’t increasing. This may be because your costs and overheads have increased but your prices haven’t.
- Undercut by the competition: Your competition is selling the same product or service for more.
- Discounts drive business: You are constantly in ‘discount mode’, meaning your products or services are typically sold at a reduced rate. This may mean your standard prices are too high.
- Lazy price setting: You haven’t reviewed your prices in a long time. This may be convenient, but might not be the best for your business. Instead, you should monitor your prices regularly and amend them according to market demands.
Signs you shouldn’t change your prices
There are a number of instances when you shouldn’t change your prices. These may include:
- Unpredictable events: It might seem like a smart business move, but increasing your prices during a health and financial crisis like COVID-19 may land your brand’s reputation in hot waters. The inverse is also true – dropping your prices to get customers in the door could have knock-on effects (e.g. reduced profits) after the crisis is over.
- Change too often: Constant price rises and drops can confuse customers and drive away loyal clients. It’s also a sign you may not fully understand your market.
- Business is healthy: If your sales are steady and you’re not enduring any cash flow gaps, then it might be best not to mess with a winning formula.
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Pros and cons of changing your prices
The final decision to change your prices will come down to your current circumstances, your business plan for the next 12 months and your predicted cash flow. However, it’s important to take stock of the pros and cons of altering your prices.
Pros
- Raising your prices can position you as a ‘premium’ business, opening you up to new markets, however, you should be able to back that perception up.
- Reducing your prices can lead to higher sales.
- Changing prices can help retain your customer base, even at a time like the COVID-19 pandemic when people tend to spend less.
Cons
- Raising or lowering your prices during a pandemic can damage your brand’s image.
- Lowering prices could irritate regular customers who may feel ‘duped’ for paying a higher price in the past, or vice versa.
- Changing prices – whether up or down – will impact your cash flow forecasts, any financial data, and your bottom line. This may cause additional administrative headaches, especially during difficult times.
COVID-19 is causing major business disruption across Australia. If you’re unsure how to price your products or services, speak to your financial advisor and focus on developing a pricing strategy that suits your business. Government stimulus packages like the JobKeeper payment may also lift some of your financial burden during this time.
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