In Mozambique, inflation was once so high that I had to go to the garage with a suitcase full of money to pay for a repair.” Business coach David Kleerekoper has lived and worked in many countries and knows high inflation, like we have now in the Netherlands, all too well. “I wish I had taken a picture of it then, because I have never walked down the street with so much money since.”
In September 2022, the inflation rate was 14.5%.
Currently, the inflation rate in the Netherlands is 8% (March 3, 2023: CBS quick estimate), while it was still 14.5% in September 2022. Many entrepreneurs don’t know how to deal with this properly: wait or raise prices? Precisely because David has a lot of experience with this, we asked for his advice. And he has one clear motto: ‘make sure your prices remain up-to-date’. If you don’t do that and raise your prices later, there will be much less understanding from your customers, he explains.
‘If you don’t increase prices first, there will be less resistance’
”Especially for production companies that supply wholesalers and shops & supermarkets and are not the market leader(s), my advice is to increase your prices quickly. But if possible, don’t be the first or the last to do so. It’s often a grueling negotiation process. First, wait until the larger player(s) adjust their prices. Then there is comparative material, the customer is already prepared for it, and you hopefully know by what percentage it’s OK to increase within your sector. The discussion has already taken place, and then there might be less resistance.”
”In Brazil, where he worked at the food company Wessanen, he also experienced hyperinflation. ‘At that time, there was more than 50% inflation per month. Imagine how often we had to adjust price lists then. If you hadn’t paid attention for a few days and were late with price adjustments, it quickly cost you dearly.”
In a market economy, the price of goods and services can always change. Some prices rise, others fall. Inflation occurs when there is a general increase in the prices of goods and services, not just of individual products; this means that today you can buy less for 1 euro than yesterday. In other words: due to inflation, the currency becomes less valuable over time. Source: CBS
”Keep the price increases clear for your customer.”
Another tip he has for entrepreneurs is to make sure you don’t miss a price increase. ‘Also, calculate your price increase primarily as a percentage,’ he explains. ‘If you don’t do that, your margin will decrease. If possible, ensure that you increase the price of each product by the same percentage. Simply put, look at the price and margin of your most important product for this.”
“Or try to limit it to two or three different categories of products and determine per category by what percentage you are going to increase these prices. That keeps it clear for you and for your customer. Moreover, it’s important that you can always justify your price increase in some way.”
”With inflation, it’s especially important to know whether inflation is stable or whether the inflation rate changes and is variable monthly,” he explains. “With variable inflation, there is uncertainty; you don’t know what to expect, what the prices are, what the competition is doing, and what your customers will – or will not – accept. Every moment you have to weigh what to do with your prices, sometimes even daily, and then negotiate again. With stable inflation of, for example, 2% per month, a certain habituation occurs, and you see that everyone starts to adjust to it and already takes into account that there will be a price increase. So you can even get used to inflation.”
How can you best announce a price increase to your customers?
Announcing a price increase is never fun, but David has tips for this as well. ‘Try to implement price increases as few times as possible. In other words: try to maximize the price increase. So, it’s better to increase by 12% all at once a bit later than to add 1% every month.”
”Fortunately, there are also ways to soften the ‘pain,’ David explains. ‘With a larger increase all at once, you can, for example, work with temporary discounts to gradually acclimate the customer to the increase. So, if you increase by 12%, but the market is now at an increase of 9%, you can offer a temporary discount of 3%.”
The most important thing is that you are transparent,” David emphasizes. “Clearly state the reason for the increase and by how much you are increasing. If it’s not 100% explainable, and that sometimes happens, then at least make sure you are prepared and can say something about it or argue your case.”
‘Inflation also offers opportunities.’
You can of course also deal with your purchasing smartly,” David explains, “which means inflation sometimes also offers opportunities. By being sharp yourself in terms of purchasing and looking around at other providers, you might be able to buy better from a supplier who hasn’t yet increased their prices. This way, your margins will remain intact for longer.”
”Moreover, with significant inflation, customers also tend to look around more for other suppliers. ‘Try approaching that interesting potential customer again with your products. Innovations, new products, new packaging, etc., are always opportunities to offer products with ‘new’ prices.”
Are you also facing the problems associated with inflation? And would you like to discuss this with a coach? Then contact us via info@brilliantwork.nl.
