Businesses that operate in competitive, low margin markets where price is the key driver of demand are often reluctant to implement price increases as they fear that this type of strategy is too risky for their price- sensitive customers. It is generally true that the volume of sales decreases as prices increases, but more often than not, this trade-off is worth it. So even if you lose customers, the price increase typically results in increased sales and profits.
Raising prices can also be a more effective way to grow than trying to win new customers. In fact, it is estimated that it costs seven times more to win new business than it does to sell to existing customers.
Additionally, as costs generally do not increase in the same proportion as the price rise, price increases can be powerful profit drivers. From that perspective raising prices also has a far bigger impact on the bottom line than selling more.
The American coffee chain Starbucks are well aware of the benefits of raising prices and recently announced that they will increase prices by an average of about 1 per cent across U.S. stores. In fact, Starbucks has been raising prices gradually for more than 20 years.