fbpx

Strategies to increase your product’s prices when fuel price goes up… without scaring your customers away

 

“Madam, give me N250 bread….” Yelled a desperately hasty me! It seemed everything about the month of March was marching on so fast even, TIME!

So, it can be understood that I wasn’t pleased when I heard her say “…na N270 now o! e don add money!”

But why…it was just N250 naira about yesterday, I queried.

“….my pikin, no be my fault. Na so dem count’am diz morning. Say because fuel don cost! My neighbour sef, na 280 she de sell!”

Yeah…right! Fuel price hike indeed! The Petroleum Products Pricing Regulatory Agency (PPPRA) only published the increase, Thursday night! People got a hang of it this Friday morning! Yet you say at barely 7:00am bread price has topped money, already!

I hissed. One customer displeased.

While it is expected that the fluctuating price of the premium motor spirit (PMS) would have a toll on products and lifestyle, there still remains a thin line between price regulation and extortion!

Customers see it, too!

Now, how do you regulate cost price and not scare away customers as fuel pump price increases?

In a now deleted PMS pricing template published Thursday, 11th of March on its website, http://pppra.gov.ng/pms-guiding-price-for-march-2021/, PPPRA had listed the expected landing cost of the petrol at N189.61 per litre – landing cost is the total cost of importing petroleum products to the depot in Nigeria.

And, they placed the guiding price for ex-depot at 206.42 naira per litre for the month of March – ex-deport price is the price fixed by PPPRA at which oil marketers buy products (from NNPC) at the depots, the price is what determines the price at which petrol stations will sell to motorists.

The list further enlisted the retail price at the market band of N209.61k to N212.61k (marketers usually sell at the upper band) – well above the previous pump price of around 167 naira.

PPPRA was established by an Act of the National Assembly in 2003 as an autonomous agency to primarily determine the pricing policy of petroleum products and regulate their supply and distribution.

This roused an online frenzy as Nigerians took to vent online with the #FuelPriceHike refusing the mandate.

Moments later, the Nigerian National Petroleum Corporation (NNPC) via it’s official twitter handle countered the move, noting that the pump price has not changed.

NNPC is currently the only gasoline importer due to the state-controlled ex-depot price that is keeping levels artificially low.

 As earlier implied, PPPRA has since deleted the controversial template.

The pump price of petrol has been dramatic since the Federal Government last year opted for deregulation, eliminating decades of a subsidy regime, which reportedly, is because the elimination is among conditions for a $1.5 billion World Bank budget support loan.

HOW ARE PETROL STATIONS REACTING?

According to News Agency of Nigeria (NAN) most petrol stations after the news broke out, still sold at the old price of between 162 naira and 168 naira per litre. Reuters on the other hand reported that due to the felt panic, consumers flocked to fuel stations, prompting a sharp rise in prices at some (as high as N248.00 per litre) and, cursing others to stop selling amid the confusion.

At the moment of compiling this report, in Port Harcourt, some filling stations were noticeably locked, probably, monitoring the trend.

HOW SHOULD BUSINESSES RESPOND?

Having explained the above situation, how should you as a business owner, especially a sole proprietor, regulate guiding price in view of the dramatic rise and fall of the cost of petrol in Nigeria?

Oh…regarding how my case with the bread seller ended? I drove off.

Gone for good.

This should not be the case with your customers.

It is a known fact that efficient and low transport cost is beneficial to retail prices as transportation of goods and services within this part of the world is still borne by gasoline-powered vehicles. And according to a World Bank, 2011 report, Sub-Sahara Africa’s transport fuel prices are among the highest in the world. This means that each time PMS experiences a price hike, food and other services consequentially get affected too.

The following are practical ways a business owner could respond when prices go up without running the huge risk of appearing inconsiderate to customers or worst being tagged “extortionists”.

  • Have a Human Face

While it is true that you are in business to make profit, it is equally true that you are in it to serve. And serving would require wearing a human face and being ethical. This is to say that before you join the band wagon to hike prices on your products, certain things must be considered:

  • Does the fuel price hike affect your operating cost?
  • If it does, what percentage of price increase is reasonable?
  • Remember, clients would always tell when they are being unfairly Also, bear in mind that there would always be “the other-option”. And if given a room to sort for another, customers who switch, hardly return.

 

  • Sell Old-Stuck

By a large extent, what fuel hike mostly affect is the cost of transporting goods from points of origin in the supply chain to destinations or points of use and consumption. If per-adventure, at the advent of fuel price hike, old goods are still in stuck, the first call to action for business owners wearing a human face would be either of the following, but depending on obvious variables:

  • Sell the old-stuck at the previous price: remember, as reported above, this was the first call-to-action of some petrol stations who, although sell products with fixed ex-depot prices still chose to demonstrate to their customers that they have conscience.
  • Sell the old stuck at the previous price and then gradually adjust price. This strategy would go a long way to minimize shocks to be felt by the consumers.

 

  • Consider Buying in Large Quantity

Buying in larger quantities, the goods you need can save you the cost of going on repeated movement and consequentially, go a long way in spreading the transportation cost on the item. As a result, the final price when determined would not be too high.

 

  • Consider Shrinkflation (Reduction) in Product size

If for instance, you are in the business of bread production, a good way to help your customers absorb shock and you still increase your margin would be to “shrinkflate” (reduce) the size of the bread while retaining the old price. Chances are that some customers might not even notice.

 

  • Cross your T(s) and dot your I(s)

This goes to say examine yourself, your final packaging, your way of production and strategy to determine overheads that can be cut off. If for instance, you are in the business of popping and selling popcorn and before the #FuelPriceHike, your packaging entailed finishing with a spray of evaporated milk, bagging in a thick white paper-bag and sealing with pins. A good way to help customers absorb shock, could be in eliminating the milk or the thick paper-bag and the seals and go for cheap white SAVANNAH water-proof bag (polythene bag) as they call it in Port Harcourt.

 

  • Create Varieties

In helping consumers absorb shocks by way of minimizing or eliminating it, business owners often run the risk of affecting quality. With that said, a good strategy to adopt and balance the equation, would be to create varieties that would be sold for different prices; giving the consumers the option of choosing according to their taste and purchasing power. A good example would be in the case of the popcorn seller; she could retain the old package and also introduce the cheaper package thereby giving the consumer a variety of options.

 

KEY TAKE AWAY

  • You are in business to serve profitably
  • In advent of price hike, strive to minimize consumer shock
  • Consumers patronize businesses with elements of a human face
  • Examine yourself before price hiking

Since the rise and fall of petroleum prices is likely to be a permanent feature of the economy in this clime, it is advisable for business owners to come to terms with it. Bearing in mind strategies with which to affect prices in a win-win way for all.