7 Tips for Managing Price Hikes

Last Updated Jun 10, 2008 11:53 AM EDT

7 Tips for Managing Price InflationFollowing the historic 9 percent run up in oil futures June 6, expect your customers to be more concerned than ever about prices. But it's not just customers you have to worry about -- you need to be thinking right now about how to manage your business through the deepening economic gloom, especially if you are a commodity provider.

Harvard Business School marketing expert John Quelch serves up seven tips for marketers to consider on his Harvard Business blog. Here they are in brief; visit his post for more in-depth info.

  1. Understand the buying habits of your customers.
  2. Segment consumers around product usage behavior and price sensitivity.
  3. Marketers must reverse engineer products and packaging to hit key retail price points.
  4. Cut prices not across the board but only on items selected as your inflation-busters.
  5. Unbundle offerings to make it easy for price-sensitive customers to cherry-pick options and services.
  6. Manage your inventory on a last-in, first-out basis.
  7. Persuade customers to cut back their expenditures on other products, not on yours.
The challenge is especially difficult for marketers of goods for which buyers don't understand the costs involved, Quelch says.
Decorative candles, for example, are highly sensitive to oil prices and the purchases are discretionary. The key here is to educate the consumer, apologize for the uncontrollable price increases, give price-sensitive consumers some promotional options, and reemphasize product benefits.
How is your business dealing with cost and price increases? Do you have tales of particularly successful or failed approaches to making things right with your buyers?

(Gas price image by richardmasoner, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.