Raising Prices Becomes Tricky Now

It’s becoming a serious problem as we enter the fall. Higher labor and commodity costs are eating away margins and making it awfully tempting for many leaders to just raise prices and call it a day. In the past week, restaurants have tacked on surcharges and companies that provide a slew of goods and services—among them streaming movies, manufacturing electric cars, and marketing game consoles—have announced price hikes that will go into effect shortly.

But while companies might have successfully raised prices without much controversy a year ago, experts say, they may face a backlash this fall. Inflation and the slowing economy are curbing the buying power of consumers big and small, and a poorly executed price change could turn off customers for both the short and long term. “Pricing is a big deal, and it’s top of mind of boards,” says Peri Hansen, sector leader of Korn Ferry’s Consumer Products practice in North America.

Early indications across industries suggest that consumers of all sorts are balking at price increases. In their latest earnings reports, multiple retailers have said consumers are cutting back purchases on anything they don’t consider essential.

There’s good reason for consumers to ask why company leaders would raise prices now. After all, the one indicator highlighted in most media is the consumer-price index, which stopped increasing in July (overall prices are up 8.5% over the last 12 months). But consumers may not recognize that this average number masks a massive amount of volatility, experts say. Prices for energy, metals, and durable goods have fallen, while food prices have been moving in the other direction.

The price increases of the moment might make even corporate consumers raise their eyebrows. The ongoing war in Eastern Europe is pushing grain prices higher. But the global market might have been able to handle that, if not for a bird-flu outbreak this spring and a drought in many parts of the world that hurt crop yields. Experts are finding that they have to highlight these seemingly disconnected events—all of which are impacting prices—even to sophisticated buyers. “When you have an event like that in Ukraine, it emphasizes smaller events in regional markets, creating additional stress on the supply chain,” says Tyler Howells, sector leader in Korn Ferry’s Industrial Markets practice.

In general, experts suggest that in today’s purpose-driven era, firms need to deal with stakeholders far more transparently and thoughtfully. Firms, they say, should give customers ample advance warning of a price change, and explain the reasoning behind it, too—especially if it’s an increase. And they should also give customers the opportunity to register any concerns or questions. Consumers may not like a price increase, experts say, but the more information they’ve got, the likelier it’ll be that they accept it.

Another goal is to try to give consumers as many options as possible. Don’t just change the price, experts say—add new features, bundle products together, even change the branding strategy. “All of these things are on the table, because you have to justify that rising price,” Hansen says.

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