Topic: Strategy

How To Raise Price In A Commodity Business

Posted by tomr on 250 Points
Raw materials are increasing significantly since the lockdown due to COVID-19 took hold last April-May 2020. How does a company providing commodity prices to a slow growth - no growth industry raise its prices? Should you consider a Surcharge for 90-120 days and if so how stated?
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  • Posted by Jay Hamilton-Roth on Accepted
    Changing the price alone is unlikely to benefit your business, especially if the competition isn't changing their pricing. Instead, differentiate yourself by providing increased value to justify the increased prices.
  • Posted by Peter (henna gaijin) on Accepted
    Part of the marketing definition of commodity is that it is a non-differentiated product. That means they could easily buy from you or your competitor. Commodities are generally sold based on price- whoever has the best price makes the sale. Given this, raising prices is hard. If you raise your price but your competitor doesn't, the customers will just buy from your competitor.

    But if all the suppliers are getting hit by the same higher raw material costs, it is possible if you raise your price the competitor will also raise their price. Risky to do, as they may not an you would lose sales.

    Jay, in the message above, talks about differentiating as a way to more easily raise prices. This means moving the product or service away from being a pure commodity. If you can deliver the product faster than your competitors, you could charge a higher price to someone who needs it faster. Or if your product was of better quality than competitors, then you could charge a higher price to someone who benefits from a better quality product.

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