Topic: Strategy

Pricing Method Under Unstable Cost Of Raw Material

Posted by k_sunnat_1996 on 250 Points
Hello Everyone,

I produce paint materials.
Recently, the price of main raw material has increased.
In stock, I have this raw material at cheaper price.

My question is when I should increase the product price?
Should I increase my price after I finish with cheaper raw material, or should i increase my price immediately?
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  • Posted by Peter (henna gaijin) on Accepted
    First, make sure you don't have any laws in your country or area related to price increases. For example, in the US many places have laws against what is price gouging if there is a declared emergency ( Other countries have less strict rules which could make changing prices illegal.

    Barring any of that, you should price the product based on what the market will bear, not based on what you paid. If the price of competitive products increases, you should increase your price. Note - this also means that if the prices go down, you either need to lower your price also to match, or not sell the product now in hopes the prices come back..
  • Posted by mgoodman on Accepted
    The approach you take to pricing depends mostly on your company's objective. If you are not highly differentiated, you may want to keep your price just low enough to gain some additional volume. If you consider your business to be a cash cow and you are already somewhat premium priced, then you probably want to maintain the premium (vs. the market) and increase your profit margin.

    Regardless of what you decide to do, Peter's point is right: What you paid for ingredients is irrelevant. You should price to deliver on your company's objective and positioning in the marketplace.
  • Posted by Jay Hamilton-Roth on Accepted
    Since the raw material price has increased, eventually you will need to raise the price. Because you have a stockpile of the material you have flexibility. To gain additional market share, you could advertise that you're still selling your product at the old price ("while supplies last"). Or, to increase your profit, you could increase your price to what the market will bear. It depends on what your business goals are.

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