I’ve had several inquiries in the past two weeks about the impact of prices on customer behavior.
Specifically, you are asking what happens to customer behavior if prices increase by 10% to 20%, through no fault of your own.
We have a lot of data from 2021-2022 to guide us in this endeavor. Here’s the process I went through three years ago to address the issue.
- Let’s say you have 15 merchandise categories. When you send me five years of purchase history, I have four years of year-over-year pricing comparisons times fifteen merchandise categories, for sixty (60) data points. That’s enough for me to do some damage.
- I’ll compare year-over-year impact of prices (say, +10%) on rebuy rates (say, -5%), annual orders per buyer (maybe flat), annual items per order (say -2%) … which leads us to what I call demand per inventory (-7%). If prices increase by 10% and customer productivity decreases by 7%, you know that the top-line won’t be hurt, but you’ll have 5% fewer customers repurchasing, which means you’ll have a contracting business.
- I’ll perform the same analyses on new/reactivated buyers. Pricing issues typically hurt new/reactivated customers more than they hurt existing buyers.
- Given what I observe, I’ll forecast the next few years as a consequence. You’ll have a good/directional idea whether price increases will hurt your business.
The core part of the analysis that informs the work I perform is in orange-ish cells below.
Let’s try something … I’ll do this for $4,990 as a test, prepaid. This is likely going to be way too little to charge for something like this and I’m going to feel like I ripped myself off. It’s not a typical $15,000 pricing project, of course, but for nearly free you get to learn the likely impact pricing increases would have in your business, should they come to fruition.
Contact me now ([email protected]) … offer ends on Friday.
