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Tim at Get Grilled Foods is a student of mine in Indiana. He writes:
I have a question. I am up against a 11% + increase in meat cost this year.
Produce is up, chips are up etc. I have heard stated and read, to charge the
highest price for a quality product. I now run up against product cost
exceeding what the market can bear. We are all tightening our belts. What
do i do when my cost on product is driving my price not the market?
This is the number two problem that businesses have faced since the beginning of time. (The number one problem is getting started. Learn how to do that by clicking here.)
Our hot dog businesses are no different than Coke or Nike. All of us live or die by the same equation: Income – expenses = profits.
I learned in high school biology class that the environment is always changing and that living organisms only have three options: adapt, migrate, or die. I’ve found that this applies to the dog biz as well.
You can adapt: Find a less expensive product, raise prices, increase average customer spend.
You can migrate: Find locations with less price sensitivity.
Or you can die: Not an option.
Everyone’s first instinct is to source a less expensive (but still good quality) product. However, this is a short term solution since the price of product always increases. All you would be doing is putting off the inevitable.
Let’s face facts – periodically you (and every other business in the world) are going to have to raise prices. Sorry to be the bearer of bad news. Actually it’s not bad news. Read on…
I’m willing to bet there is more price elasticity in your market than you think.
It’s difficult to try to penetrate a new market with an item no one has seen before. On the other hand, it is infinitely easier to bump up the price a bit on an existing customer base who loves your stuff.
We scare ourselves into charging less than we should by thinking that our customers are always comparing our prices to McDonalds or Taco Bell. Guess what? They are not.
We don’t compete with McDonald’s, or Taco Bell, or Burger King, or Sonic, or Arby’s. Here’s why:
When someone craves an awesome hot dog where are they going to get one? At Micky D’s? Nope. From that nasty roller grill inside the gas station? Don’t make me laugh.
They get it from YOU Tim, because… your hot dog is exactly what they want and they always get it from you. Because it’s consistently awesome. Every time.
When their stomach sends the hungry-for-hot-dog signal to their brain, their brain automatically says, “TIM’S HOT DOG. WANT ONE. GET ONE. NOW. I NO SHUT UP UNTIL I GET TIM’S HOT DOG. GO. GO. GO.”
People are always willing to pay more in order to keep using a product or service that they have already tried and like to the point that they can’t live without it.
Inertia is a powerful force. Makes you dig behind the seat cushions looking for change.
Your meat supplier knows this. That is why your meat supplier isn’t afraid of raising their prices.
Cost is not driving prices beyond what the market can bear, rural or otherwise.
Drive by the trailer park and you will see satellite dishes on every roof. Why? Because they can’t live without it. Somehow they find the money. (By the way, nothing wrong with trailer parks. I used to live in one.)
If the customer isn’t willing to pay a bit more it’s not because she doesn’t have the money. It’s because she doesn’t perceive the value.
Your job is to make sure your customers can’t live without your awesome hot dogs and other products, and from what I’ve seen of your operation you have that down cold. Congrats on that!
Bump it up twenty five cents, keep your margins intact, and have fun Tim. And if a customer asks about the price increase just tell them, “My supplier raised the prices on me.” Folks understand that.
Sell ’em all!