Today's consumers may be more cost-conscious than before, but introducing small price increases isn't out of the question and can result in a tidy profit. Sarah Britton reports

Since the recession hit, penny pinching has become a trait of the masses. But although customers are tightening their purse strings, it appears there is still leverage for retailers to increase their prices and up their profits.

"Price is clearly an emotive issue, and times are hard with the recession," says Tom Fender, director of HIM research & consulting. "But although shoppers say they know how much things cost, when we push them, they often don't. So it is the perception which is as important if not more important than the price itself."

The economic climate has caused shoppers to be more cautious, acknowledges David Ringer, general manager for UK & Ireland for retail marketing firm The Continuity Company. "Shopper behaviour has changed," he says. "There is a more considered approach that is driving buying decisions. It is a question of need and affordability."

However, despite consumers being more prudent, there is still an opportunity for retailers to experiment with price increases. Graham Hoyle, managing partner of consultancy Retail Performance Improvement, agrees that consumers are not as clued up about product prices as they make out. "Whenever we do customer research, there's no doubt that consumers are more price conscious these days, particularly when it comes to known value items, which are everyday staples such as bread, butter and milk. But aside from these, their product price knowledge is limited." 

Small change

Retailer Lionel Cashin, who owns The Paper Shop in Market Weighton, Yorkshire, has certainly found this to be the case. "Your average consumer only knows the cost of about 10 products. Beyond that, they won't be able to give an exact price," he claims.

With this in mind, Lionel has made small category-wide price increases, of about a penny a product, and because he uses epos he can monitor sales and ensure that the price increases aren't turning off customers. "One of the key benefits of epos is that you can spot even small changes in sales patterns," he says. "Because we are fully scanning, I have been able to measure the effect of price increases to ensure that they are not losing us sales."

And Lionel isn't alone in his pricing tactics. John Mitchell, who owns two Spar stores in Fife, has also been making price adjustments. "I have increased 15 key confectionery lines by a penny including Mars Bars, Twix and Kit Kat Chunky. They were 59p, so I upped them to 60p, which gives me more profit and saves change in the tills," he says. "My confectionery sales are in double-digit growth it certainly hasn't had a negative impact. I've made more than £1,000 a year extra through doing this."

However, he is careful to add that the strategy only works with small price increases. "I'm not mocking customers it's just a penny above the rrp," he claims.

Lionel agrees that price increases aren't about abusing customers' trust. "It's all about premium pricing, not insult pricing," he states. "You don't add 10p to a product you'd just give the impression of poor value."

Provided that price adjustments are minor, Hoyle is in full support of retailers experimenting. "Manipulating prices is a legitimate way of making sure that your business makes a reasonable profit," he says. "You need to look at your range and analyse where a penny here or there isn't going to disadvantage you." 

The whole package

While the chance to profit from small price increases is clearly a positive, retailers must be warned that the strategy is successful only if customers believe the store offers them a good deal in terms of a pleasant shopping environment.

"If c-stores can get the other retail appeals right, such as service, availability and cleanliness, then price becomes less of an issue," says Fender. "C-stores have done a great job in retaining and attracting customers during the recession and money is tight but retailers can play about a bit with their margin providing their total offer is what their shoppers are after."

Hoyle is equally convinced. "The better the shopping experience, the more likely you are to get away with increasing prices," he says. "A recently refitted store with a good choice of products is likely to see more success in easing up prices than an older store that doesn't have as wide a range."

Where your store is situated can also affect how successful you will be at increasing prices. "You need to be sensitive to your catchment area and locality," Hoyle adds.

"The area you are in does have to be taken into account," agrees John. "Both my stores are in areas without too much competition, so I can afford to experiment."

He believes that most retailers could benefit from marginal price increases. "It's certainly worth giving it a go," he says. "It's frightening the amount of profit you can make by introducing a very small price increase."

Lionel concurs: "Irrespective of the recession, retailers should explore how small increases can benefit sales. From making small changes across whole categories, and regularly reviewing sales on epos, you should be able to add at least 2% to your gross margin."

It seems there may well be some truth in the old adage: look after the pennies and the pounds will look after themselves.