Steve Marr.org

One reality is prices are rising for many businesses. You can read my earlier article on how businesses are trying to get ahead of this: http://bit.ly/fqV2bx .

A reality is the value of a merchants stock will rise, and fall with the market.  For example, you order 96 dresses you believe will be hot sellers at $35.00 each. Four weeks later you still have 90 in stock. You discount the stock to move beyond your mistake. You take the loss.

Gas Stations get maligned for raising prices. My belief is, when the price of gas goes up, the value of the gas in the storage tank goes up, and the seller gains the increase. Likewise, when the price of gas falls, the seller must take the markdowns, and the loss of value of his gas. The merchant gains, or loses based on the price change. 

Not everyone will agree with my perspective. One may think the gas station should not raise prices until they need to buy more gas, and then raise prices based on the new, higher cost. The problem with this perspective is what happens when the price falls? If the gas station holds a higher price, no customers, they all flock to the lower priced competitor across the street.

One of the risks businesses take on is the value of inventory. Most of us have held goods that dropped in value, because the price went down, or we miscalculated the demand. The business must absorb these losses; do this too often and we go out of business.

I was working with the owner of a higher end jewelry store. With the higher prices of gold, some pieces he held for several years were now priced at retail near, and at times below his wholesale replacement cost. He had just sold a gold piece for $400.00, and ordered a replacement for stock. His cost was $380.00. My council was to start selectively raising  prices on the stock that was bought when gold was $400.00 oz., not $1,400.00 today. He ignored my advice, and later a customer came in, bought 14 pieces, a great sale he thought. Upon reflection, he figured out the customer knew the value and cherry picked the bargains.

I am not suggesting unreasonable pricing be used, just as business people, we need to understand the value of our inventory. When that value goes up, we should benefit, but when that value declines, we must accept the loss.

The Apostle Paul wrote, “Each of you should look not only to your own interests, but also to the interests of others” (Philippians 2:4 NIV). In pricing, we need to look, and pray for the correct balance between our customer’s interest, and ours.

Steve Marr, Your Christian Business Coach

Subscribe to the free Business Proverbs e-mail here: http://bit.ly/ncixc1