Perhaps no term dominated headlines in the final quarter of 2021 like inflation. For millennials and gen Z, it’s an unfamiliar economic phenomenon—for older generations it conjures frightening memories of 1970’s stagflation and the following recession in the 80’s.
In an effort to avoid price-shocking customers, businesses have come up with some creative solutions, one of which has yielded a new piece of Internet slang—skimpflation. Skimpflation refers to the current trend of businesses “skimping” on services as part of a multipronged approach to deal with rising prices. So rather than simply passing on increasing costs and the risk of alienating potential customers, these businesses cut services, or skimp on them.
For instance, a hotel might have 15% increased costs, so rather than adding 15% to the room price, they increase prices by 5% and hire fewer maids—so if you need extra towels, or anything else, it takes longer. And they cut the complementary breakfast from waffles, pancakes, eggs, and orange juice to a tray of muffins and a water dispenser.
We understand that all businesses are not the same; however, we have a few suggestions that any business should consider about how to pass on rising costs:
Consider what parts of your business are most essential to your customers. If your products are perceived as commodities, keeping costs down CAN be of paramount importance; in these circumstances cutting services or extras may offer value if prices can be kept down. On the other hand, if your services are essential or beloved by your clients, keep in mind that a simple price increase may be better received than reducing excellent service.
Don’t be afraid to communicate what’s going on to your important clients. Price increases can be a lot easier to swallow when paired with meaningful context. Rather than making excuses, sharing circumstances about the increased cost of raw materials, supply chain issues, or hiring difficulties that are tied to well-known economic trends will soften the emotional blow to clients and increase the likelihood they will continue to do business with you.
Create contingency plans based on less than best-case scenarios. For example, assuming inflation continues and your costs go up, what will you do? Is there a threshold at which you raise prices again? Are there certain points where products or services become too expensive to offer anymore? Does a simple percentage make sense, in which case your pricing fluctuates regularly with the market?