August 09, 2023

We Raised Prices. It Worked For A Year

Never trade a customer for a dollar.

Here's a common scenario.

  • Prices were increased by 10% in 2022.
  • Response decreased by 10%.
  • Spend per Customer increased by 11.1%.
The outcome of this tradeoff is flat demand/sales. All is good.

Now it's 2023. And guess what? The relationship isn't working anymore.

You know why?

Because in 2022 when response decreased by 10%, you lost 10% of your housefile. Congrats! Those customers aren't there to buy from you anymore.

Want to see what that relationship looks like over five years?

Assuming prices remain at this level for the next five years, this business goes from $210 million on the top-line to $192 million because the business is starved of customers.

Never trade a customer for a dollar.

Profit suffers as well. In fact, in this Marketing Budget Experiment, gross margin percentages would have to increase by 1.4 points (from 50.1% to 51.5%) ... if you're passing cost of goods increases on to the customer, you might even have a gross margin percentage decrease.

I realize you likely have to pass cost increases on to the customer. But there is a price you pay ... and you can't see that price for 2-3 years AFTER you make the decision. By then it is too late.

I'm guessing you run some sort of long-term scenario that fuses price increases with customer response, customer spend, and customer segment migration patterns ... so you already know much of what I'm sharing here. Regardless, the facts need to be shared with all of you.

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