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Beat the Downturn by Raising, Not Lowering, Your Prices

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Earlier this month, Walt Disney Co. made an interesting decision regarding their theme park pricing strategy. Faced with slowing sales growth at home in the US, the company decided to raise the price of one-day admission at its largest resort by more than five percent.

While the five percent hike for children and 5.6 percent hike for adults at Walt Disney World only resulted in increases of approximately four dollars, the decision was a controversial one that lead to business pundits both supporting and chastizing the company.

When your company is faced with the effects of a recession, like slowing growth or decreasing sales, what is the real best course of action?

Like with most things in business: It depends.

A good rule of thumb however, is that unless your company is renowned for its low pricing, you're safe to raise your prices. That doesn't mean you can start charging $16 dollars more for your cheeseburgers, but it does mean you have some flexibility. Making an honest assessment of how pricing impacts your clientele will position you to make necessary adjustments.

For Disney, the assessment could have looked as simple as this:

The number of people who will take vacations this seasons will undoubtedly drop a bit when there is so much widespread emphasis on pinching pennies. That said, for those families that do take the initiative to hop a flight, rent a car, and/or put every one up in a hotel for a few nights, the difference between $71 and $75 dollars for admission will not be the straw that breaks the camel's back.

While price is an important factor in purchasing decisions, the vast majority of people don't buy based on price alone. They buy based on value. However, a larger percentage of consumers will buy based on price alone, in the absence of any other value indicators. The key is to effectively communicate your value.

When you start to feel the squeeze of a slowing quarter, don't be afraid to go against the initial instinct that many have to drop prices right away. Sometimes, boosting your price can be just the tool you need to get you over the hump and get back to making money.


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Ken Pirok says

Good advice...In economics class, you learned about the elasticity of demand. Basically, if raising the price has little effect on demand, then you can get away with it. You may even enjoy higher profits. In my work with small/growing businesses, I find that they underestimate their expenses, but they also underestimate their sales, and they undercharge. Be sure that you're charging enough for your goods and services. Test out a price increase and see if you can actually increase revenues by raising a price. You may be surprised.
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