When Lloyds Bank spoke to about 1500 small and medium-sized businesses In December, 53 percent of owners said they had increased prices to customers in response to rising costs.
From one perspective, that could be considered a low number. Virtually every business in the UK has experienced high inflation – currently at 10.1 per cent – with energy prices, higher input costs and rising wage demands creating a perfect storm. The obvious way to respond to rising costs is to charge customers more.
But again, not everyone is capable of that. The high inflation also hits the customer’s wallet. If a company raises prices – even cautiously – some customers are likely to look for decent alternatives.
This poses a real dilemma for SMEs and enterprising companies. Is it better to suck up rising costs and accept lower margins to retain valuable customers? Or is it wiser to recognize that prices have to go up and to communicate this as well as possible?
There is a certain pressure exerted by the Government to the former. Last year, newly appointed Czar David Buttress urged companies of all sizes to take action to lower prices for consumers. At a conference of the Confederation of British Industry, he asked delegates to come up with ideas to combat inflation.
But is it feasible to cut or lower customer prices?
Jolyon Bennett, owner of founder-owned British consumer electronics company Juice, believes so. And perhaps more importantly, he’s made a bet that taking care of customers will pay off in the long run.
It’s not every day that a company contacts me proudly claiming that profits have dropped. There is an understandable tendency among entrepreneurs to accentuate the positive. However, as Bennett points out, the drop in profitability was directly related to a decision to set prices and also adhere to sustainable environmental practices.
Juice – which is still wholly owned by Bennett – was founded in 2012 and over the last decade the brand has quietly become known in the UK market. In the beginning, it focused on producing brightly colored charging cables for smartphones and tablets. That remains the core of the business, but it also sells products such as DAB radios and smart speakers.
The first cables were sold through retail chain John Lewis, and 3,000 of the original order of 5,000 were sold within days. “Consumers loved the fun and the design of it,” says Bennett. “They gave chargers as gifts.” The nascent brand expanded rapidly and today the company’s products can be purchased at stores such as Tesco, Rymans and Argos. Customers are mainly in the 15-30 age group, although many of the first customers are now in their 30s and continue to buy.
But as Bennett acknowledges, the post-pandemic landscape has been tough. Costs have gone up. The company made a profit of more than £1 million in 2022 compared to the previous year due to exchange rate fluctuations and rising costs. Turnover also fell by approximately 6.7%. Inevitably, the company faced the question of whether or not to raise prices. Bennett decided to prioritize customers.
“I am very grateful to our customers and what they have done for me,” he says. “I wanted to do things the right way to reduce the impact of the cost crisis.
According to him, passing on the higher cost to Juice would have resulted in a £2.50-£3.00 price hike for a charging cable. “That may not seem like a lot of money to me. But for some people it is a lot.”
At the same time, the company also invests in environmentally friendly packaging, or rather plastic that can be recycled. Again there is an impact on earnings.
But shouldn’t adjustments be made at some point? Bennett believes that Juice can afford to see a drop in profits to help struggling customers. Reasonable. But while inflation is certain to fall, operating costs are likely to remain high. Will the prices charged to consumers not have to rise at some point?
“Our plan is to grow,” says Bennett. “And to become more efficient. The goal is to get better at what we do.” That, he says, will cover sales in new markets, including the US
Meanwhile, turnover has increased by 15 percent this year and the company also claims a market share increase of 4 percent.
In that regard, there is a commercial logic behind setting prices and plowing an ecological furrow, especially when the customer base is price sensitive. Both strategies help to strengthen customer loyalty. But this is clearly not a strategy that all companies can follow. As Bennett acknowledges, as a 100% owner he is able to make decisions without unnecessarily disrupting other shareholders. It is also a lot easier to make a profit when the company is in a healthy state.
But caring for customers is part of the equation when enterprising companies weigh prices in the face of inflationary pressures. A short-term hit can be an investment in the longer game.