10 Paradoxical Commandments of Pricing: Give yourself a raise

By Carl Gerhardt, President & CEO of Allegra Network Never in the history of the industry has pricing been as competitive as it has been during the recession of 2009-2010. Customers demanded price relief and printers scrambled, using price as a tool to keep their volume up as the market began its decline in the last quarter of 2008. This resulted in shrinking margins and profitability and certainly has accelerated industry consolidation as weaker shops closed or were merged with stronger players. During the last several years, inflation has been running at relatively low rates. During these years, even before the recession, many printers ignored adjusting prices using the rationale: “Inflation is low, so why raise prices a little? I will make it up in volume.†This is so ill-conceived that I get upset even thinking about it. Even low inflation of 2-3% per year will result in serious erosion of profits if not passed along to the market. I have observed many printers that will go for 2-3 years or more with no increase. A little quick math will show that this can quickly eat up a sizable portion of profits or even result in negative profitability. At Allegra Network it is our policy that franchise members review pricing at least annually and “always†take increases to cover inflation. While these decisions are up to individual franchise members, based on local market conditions, we encourage them to always keep up with inflation or risk margin erosion. The following is text taken from an article I wrote for our company newsletter several years ago when I first came into this job and I repeat it as we approach each New Year: I can’t come up with a better way to sell you on annual or semi-annual price increases than these Ten Commandments of pricing stated “paradoxically.†That is, a true statement or group of statements that leads to a contradiction or a situation which defies intuition—a paradox. If you hear yourself in one or more of these objections, listen closely: raise prices this week, and start the New Year ahead of the power curve. 1. I can’t raise prices; I’m the highest in my market. Raise prices anyway; you are probably fooling yourself. 2. My staff says our prices are “high enough.†Raise prices anyway; they may not understand the deadly law of inflation. 3. My competitors never raise prices, so why should I? Raise prices anyway; let them stay poor. 4. Industry pricing studies show me in the top third quartile. Raise prices anyway; do you want to fall to the middle or bottom third? 5. If I raise prices, I may lose sales. Raise prices anyway or you will lose profit. 6. If I raise prices, the tax man will get more. Raise prices anyway so you have something with which to pay him. 7. Employees will expect a raise if I raise prices. Raise prices anyway so you will have some money to keep them up with inflation. 8. My spouse will just spend it. Raise prices anyway; he/she deserves it. 9. My costs have not gone up and inflation is low – under 2%. Raise prices anyway; even low inflation requires price increases. 10. I change paper prices, and that’s enough. Raise all burden rates and mark-up tables anyway or lose margin. The bottom line is that intelligent pricing is your top management responsibility. Commit to annual or semi-annual price increases to gain back those margins you may have lost over the last two years. Give yourself that raise (and your employees as well) that you deserve. If you do it intelligently, your customers will not even notice it…and if every printer in the country would do it the industry would be a lot better off. (Adapted from www.paradoxicalcommandments.com) Carl Gerhardt is the president and CEO of Allegra Network (www.allegranetwork.com), one of the world’s largest print, marketing and graphic communications franchisors, linking more than 500 locations in North America under the brands Allegra, Signs Now, Insty-Prints, and American Speedy Printing. He can be reached at cgerhardt@allegranetwork.com.