Set prices with 5 stakeholders in mind

With inflation at record levels, the survival of your business depends on your ability to set the right price for your products. Why is pricing so important now? In a nutshell, it affects all of a company's stakeholders, including consumers, employees, suppliers, competitors, and shareholders.

Unfortunately, there is no simple formula for balancing the interests of your company's stakeholders, and the right answer varies by industry and company. Here's how to think about pricing from a stakeholder perspective based on a restaurant in Charlotte, NC: Good Food on Montford (GFOM).

1. Customers

If you are the dominant supplier in an industry with few competitors, you may be able to raise prices to maintain high profit margins. Most companies face rivals who compete by giving customers more of what they want at a lower price.

If business owners decide to be a low-cost producer, they must offer a good product at the lowest price. If they want to be a differentiator, they must deliver a premium product at the highest price their customers are willing to pay.

In the restaurant industry, what customers say about their dining experience is vital. Based on this, GFOM might have some issues. According to the New York Times, in online reviews, some customers complained about its higher menu prices.

GFOM customer reviews suggest broad implications for leaders. Specifically, they need to analyze all of their costs and reduce those that don't contribute to a great customer experience. These targeted cost reductions will limit the amount they need to raise prices to cover their essential costs.

2. Employees

Most business owners struggle to hire the people they need to keep up with demand. Some settle for fewer employees by reducing production or, in the case of restaurants, reducing opening hours.

In the meantime, personnel costs are higher than before the pandemic. GFOM pays a lot more for people. As Elizabeth Tackett, its general manager, told The Times, the restaurant's labor costs are now north of 30% of GFOM's monthly budget, more than its average. 22 and 25% before the pandemic.

To limit the extra amount they have to pay employees, business leaders should explore ways to improve employee productivity. Additionally, they should increase retention by dedicating time to making their employees happy.

These measures will limit the extent to which businesses will need to raise prices to cover labor costs.

3. Suppliers

Many suppliers pass on their higher costs to businesses, forcing them to pay higher input prices.

Restaurants are vulnerable to such price increases. In some cases, they may increase prices to reflect increased costs; in others, they offer a substitute that costs less. For example, GFOM increased the price of Korean beef with crispy rice by 50% from 2019, to $16 this year, with the cost of beef increasing by 56% to $14 per pound.

Meanwhile, after the cost of scallops increased by 118%, GFOM replaced quail. After all, as chef Andrew Alexander told The Times, diners wouldn't be willing to pay "more than $30 for a small plate."

GFOM offers important pricing insight here: you can increase the prices of certain items if customers demand them and the price is within their budget. Otherwise, offer a cheaper substitute.

4. Competitors

While business leaders shouldn't try to copy their rivals, they should keep an eye out for the subset of competitors who are looking to win over their customers.

In the restaurant industry, business leaders need to monitor...