"Successful" "Lean" Company "Forced" to Raise Prices
Harkening back to my earlier post about GM schizophrenically cutting AND raising prices (due to poor sales and rising materials costs), we find another article about a company raising prices “because they have to.”
Facing unprecedented cost increases in raw materials, Wenger Corporation is notifying customers that prices on all its products will increase by four percent effective July 14.“Our continuous improvement efforts, including lean manufacturing activities, have been highly successful in producing measurable results,” says Bill Beer, President and CEO of Wenger Corporation. “However, we can no longer absorb commodity price increases of this magnitude.” Since January, Wenger has experienced double-digit price increases for key materials including steel, aluminum, plastic and wood, along with higher freight and fuel costs.
Ugh. This is pretty simple. When costs go up, profits go down (not trying to be condescending). Most companies don’t like that… sure they’ve tried reducing other costs (through Lean, bravo), but profit margins are “unacceptable” to management. So what do you do? Raise prices, to maintain margins, of course. That’s a very linear and simplistic view of the world.
In most markets, if you raise prices, demand will go down. Falling sales will increase the company’s cost per unit, which will make profit look worse. So what do you do? Raise prices? How do you get out of that cycle?
To any company that is raising prices “because they have to” and it isn’t appreciably hurting sales, I have one question? Why didn’t you raise prices earlier? You obviously weren’t charging a fair market prices. OK, second question… isn’t that a sign of mismanagement, not charging a properly high price?
You should raise prices “because you can.” Because customers will pay it. Well, except that customers might only be “forced” to pay the higher price until they can get out of their contract or change their design so they can switch to a competitor.
Or am I missing something? If I’m not understanding this right, I guess my MBA ain’t worth much. But I’d bet Wenger Corp. is run by MBAs also…