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Small firms must increase prices to boost flagging margins, academic claims

Friday, 22 October 2010 | By Oliver Milman

Under-pressure small firms should start increasing their prices or risk further damage to their profit margins, a business academic has claimed.


Dr Greg Chapman, a business author and lecturer at the University of Melbourne, says that Australian start-ups are struggling after absorbing various costs and need to look at increasing their prices to stay afloat.


“Businesses have effectively absorbed extra costs, such as utilities, and they’ve found it very difficult to increase their prices,” he says.


“They’ve done this year after year and they can’t do it anymore. A lot of businesses don’t understand if they are making a profit or not. If every sale is a loss, that erodes profits from other parts of your business. You need to make sure every sale is profitable.”


Chapman insists that it’s “not about raising your prices by 10% or 20% tomorrow”, adding: “Your marketing has to understand the value of what you are saying. You have to explain why your product is being sold at that price.”


“You have to do it strategically. It’s all about the point of difference you provide. Why would people want to pay more for your product? If you can’t think of a reason, no-one else will be able to and you’ll become a commodity like petrol.”


“Find out what niche you serve and who values your product. Firms worry about being undercut, but that will only be by people looking for the best price – those aren’t your best buyers.”


“It’s a mistake to think that price is the biggest reason that someone buys something. The biggest reason is whether you can deliver. If you can meet your promise, they will pay the price.”