August 16, 2021

We're Raising Prices!

Maybe you have to raise prices.

Maybe your CFO wants fatter gross margins.

Maybe somebody is holding your merchandise hostage off the coast of China, extorting you to spend $15,000 more to have the shipment arrive in a timely manner.

Regardless, most of the businesses analyzed over the past two years have pretty significant price increases.

On average, there are four things I'm seeing.
  1. For every 1% increase in prices, there is a 1% decrease in annual repurchase rate.
  2. For every 1% increase in prices, there is a 1% increase in spend per repurchaser.
  3. For every 1% increase in prices, there is a 1% decrease in new/reactivated buyers.
  4. For every 1% increase in prices, there is a 1% increase in spend per new/reactivated buyer.
As always ... YOUR MILEAGE WILL VARY.

This trend has been masked by the COVID-bump ... when we were in the "free money" days of mid-2020, you couldn't see the trend because new/reactivated counts were trending +50% or whatever your number was.

In 2022, you're going to see the impact of price increases on your customer file. It's going to be harder to develop customers if you keep asking for more money from your customers.

I realize that you "have" to do this.

But you need to realize what the repercussions of your actions are.

The repercussions?

Over time, you will have fewer customers who spend more. Your top-line might flatten out, but your customer file will shrink, requiring more new/reactivated customers to offset future challenges.

And yes, I get it ... you're just trying to figure out how to get "to" 2022, you don't have time to think what happens beyond 2022. Understood. But make sure you have somebody on your team who does care about what happens beyond 2022.

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