Navigating pricing strategies in a cost-of-living crisis

13 June 2024

Navigating pricing strategies in a cost-of-living crisis

Setting the optimal price for your products can be difficult to navigate.

When you set your price too low, you undervalue your efforts and the quality you provide. When you set the price too high, you risk potential customers walking away.

Striking the right balance is crucial to ensuring both you and your customers are satisfied.

With the cost of living still rising rapidly, businesses must deeply empathise with their customers’ changing spending behaviours.

Understanding these shifts is going to be necessary for you to make effective pricing strategies.

Conduct thorough market research

Before you decide on prices, it’s essential to understand your customers’ willingness to pay.

This involves researching competitors to see what prices they are marking their own products at.

­However, this information should serve as a guideline, not a blueprint.

The quality of their products and their overhead costs may differ significantly from yours, so avoid blindly matching their prices.

Emphasise product value

Price isn’t everything – highlighting the value your product brings is equally important.

Customers need to see the benefits, unique features, and solutions your product offers to really see if the value of the product is worthwhile for the price.

They need to feel as though the money they are spending is justified.

Review and optimise your cost structures

Take a close look at your existing cost structures to identify potential savings without compromising on quality.

This might involve renegotiating supplier contracts or finding more efficient ways to operate.

For instance, if you own a café and the price of coffee beans starts increasing, you could source a local roaster to see if you can bulk purchase at a lower rate.

You could even explore alternative blends that offer the same taste but at a lower cost.

Implement flexible pricing strategies

To help customers manage financial constraints, consider flexible pricing options.

Discounts, promotions, and bundle deals can all help to make your products more affordable.

You could even consider offering tiered pricing or subscription models to help customers find options that fit their budgets.

Diversify your revenue streams

Diversifying your revenue streams can help mitigate the impact of a cost-of-living crisis.

This might mean expanding your product range, exploring new markets, or using different distribution channels.

Diversification reduces reliance on a single income source, spreading risk more effectively.

For example, if you own a boutique clothing shop and notice a decline in local foot traffic due to economic challenges, you could start selling your products online to reach a broader audience.

Leverage psychological pricing

Psychological pricing plays a crucial role in how customers perceive value.

For instance, pricing an item at £5.95 instead of £6.05 can make it seem like a better deal.

Alternatively, round numbers like £5.00 can convey trust and a sense of premium quality.

It’s all about making prices appear attractive while maintaining a sense of value and trust.

Calculate your costs

Understanding your ‘break-even’ point is crucial to effectively managing your pricing.

This figure represents the minimum revenue needed to cover your costs without profit.

It can be calculated by considering both variable costs (costs that change with sales volume) and fixed costs (regular, unchanging expenses like rent).

You’ll then need to divide these costs by the number of units sold to determine the break-even cost per unit.

Add your desired profit

Once you have the break-even figure, determine the markup percentage to achieve your desired profit.

Use market research and consider your target customers’ willingness to pay to determine what your percentage should be.

Markup is the difference between the cost price and the selling price, typically ranging from 10 per cent to 50 per cent, but it can be higher in some industries.

Remember, higher markups mean more profit only if the units sell.

Pricing strategies are not one-size-fits-all. They depend on various factors, including seasonality, customer willingness to pay, business objectives, and competitive actions.

The key is to ensure that your products, placement, promotion, and pricing work together harmoniously.

If you need further guidance on setting your pricing strategy, our team is here to help so get in touch today.

Latest News

How neonatal care leave will affect your payroll and policies

From 6 April 2025, employers will need to accommodate a... Read more

Welcome news for thousands as Income Tax reporting threshold set to increase

In a move to simplify tax compliance and boost the... Read more

The tax traps of director’s loans – How to avoid unnecessary charges

Director’s loans can be a useful way to access company... Read more

Road tax changes for electric vehicles – How to secure an extra 12 months tax-free

If you own an electric or low-emission vehicle, you have... Read more

Should you transfer investment property to a company? The tax benefits explained

If you own investment property, you may be wondering whether... Read more

Planning your exit? Watch out for the BADR changes

If you are thinking about selling your business, timing could... Read more

Get in touch

This field is for validation purposes and should be left unchanged.
If you would like to see full details of our data practices please visit our Privacy Policy.

843 Finchley Road,
London, NW11 8NA

This field is for validation purposes and should be left unchanged.

If you would like to see full details of our
data practices please visit our Privacy Policy.

Glazers Chartered Accountants is a partnership. This information has been produced for general interest. It is therefore essential to take advice on specific issues. We are unable to take responsibility for any outcome resulting from acting upon, or refraining to act upon, this information. In accordance with the disclosure requirements of the Provision of Services Regulations 2009, our professional indemnity insurers are Prosure Solutions Limited, 150 Minories, London, EC3N 1LS. The territorial coverage is worldwide excluding any action for a claim bought in any court in the United States of America or Canada.

© Glazers 2025. Company No. 05962817

Website designed by JE Consulting