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Raise prices a little, a lot, too much? A delicate exercise for companies in the US

First modification: 15/05/2022 – 14:42Last modification: 15/05/2022 – 14:40

New York (AFP) – Whether they sell sodas or mattresses, US companies have managed to raise their prices in recent months without much resistance from consumers. But now that inflation sets in, things get more complex.

Chris Scharff, a computer security clerk, noticed prices going up in New York state. They are small increases, but “clearly I pay more attention,” he told AFP.

If inflation, which is nearing 40-year highs in the United States, persists, Eric Schwartz, an editor at Connecticut, plans to reduce his spending: fewer car trips, fewer restaurants, and “a little more pasta.”

Distribution companies are on a tightrope.

Between supply chain problems, rising raw material prices, and higher wages for its employees due to labor shortages, its costs are rising sharply.

But they must also be careful not to raise their prices too much so as not to discourage their customers.

Flooring seller Armstrong Flooring, on the other hand, filed for bankruptcy last Sunday for failing to raise prices enough to cover rising costs for raw materials and transportation.

With government handouts, rising wages and remote working, “consumers have spent at very high levels during the pandemic,” said Marshal Cohen, a retail sales specialist at consultancy NPD. But with the return of leisure spending and inflation, consumers are “becoming more choosy.”

According to NPD, sales of consumer goods fell 1% in April in value, and 7% in volume. “People spend the same, for fewer products,” summarizes Cohen.

retain the customer

“Although inflation appeared a few months ago, it is only now that it is really starting to have an effect” as consumers understand that it is not temporary, said Neil Saunders of Global Data.

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They react differently depending on their income, some cutting back on what they consider to be superficial expenses such as vacations or streaming subscriptions, and others by eliminating clothing purchases or choosing lower-priced brands.

Procter & Gamble, which sells soaps and toothpastes or diapers, has increased its prices since last June and expects further increases in the coming months.

Consumer goods group Procter & Gamble, which distributes Tide detergents in particular, has been raising prices for several months. JOE RAEDLE GETTY IMAGES NORTH AMERICA/AFP/Archivos

The breadth and timing of the increases depends on each product category, the firm’s chief financial officer, Andre Schulten, said during the group’s earnings presentation at the end of April.

Coca-Cola, which benefits from strong consumer loyalty, has regularly raised its prices for a year to pass on higher costs to its customers.

It’s better to do it while consumers are ready to accept it “rather than being left behind,” its president, James Quincey, recently said.

For mattress maker Tempur Sealy, “the market clearly slowed down a bit” in March and April.

The group plans to raise prices in the second half, but is ready to change its strategy if a recession looms.

McDonalds menus were worth 8% more expensive in the first quarter than in the same period of 2021, an increase that was tolerated by its customers.

“But we do look closely at our lower-income customers to make sure we’re pricing them appropriately,” CFO Kevin Ozan said in late April.

Companies can afford to flag because they know their competitors, also hit by rising costs, are doing the same, says John Zhang, a University of Pennsylvania marketing professor.

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They must make sure, however, that “customers don’t get overwhelmed” by making small successive increases, reducing the size of their product packages, or proposing a new, slightly more expensive product, he summarized.

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