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Pricing efficiency – making economical choices in an uncertain economy

It can be difficult mitigating against risk. Here, we explore some solutions to tackling pricing efficiency and volatile market prices.
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Business owners often have to make their peace with taking risks, but with times being what they are it doesn’t hurt to establish a stable relationship with suppliers. Here, we explore some solutions to tackling pricing efficiency and volatile market prices.

It probably hasn’t escaped your notice that we are in the middle of a general election, and the strong political currents are having all sorts of effects on the nation’s small businesses.

There are a lot of potential risks and opportunities, and entrepreneurs need to play their cards right so that their businesses come out the other side not only unscathed, but stronger for it.

Here, we explore the relationships SMEs can build with suppliers to mitigate the risks thrown their way from the political world.

Pricing efficiency: Currency fluctuations

Since June last year when the referendum result was announced, the pound has been up and down – but mostly down.

It’s not all doom and gloom – if you export your products or services, your prices are now more competitive than this time last year for foreign buyers. However, if you import any products or services, your costs will have risen.

This is exactly what happened when the nation was gripped by Marmite-gate. Unilever’s now famous dispute with Tesco saw the producer trying to raise end-costs of its product to allow for the rising costs of imported ingredients. Tesco refused to up the price for its customers and Marmite disappeared – briefly – from its shelves.

Marmite-gate happened back in October, and it was in the first wave of Brexit-cost headlines. Recently, claims of food prices rising and the average costs for households have been a ten-a-penny.

Lots of businesses will have found that the costs of products have changed due to the fluctuation in the pound. Even for those that have found the weak pound a boon to sales abroad, the uncertainty can be a bit scary. We can’t control the pound, and in the middle of a general election and with Brexit negotiations on the horizon, who’s to tell what direction it will head in next?

Pricing efficiency: Ways to mitigate risk

One way to mitigate against risk is to purchase your currency well in advance when the conversion rate suits you best. It’s a gamble, for sure. What if the pound gets stronger and you could have afforded to buy more euros, but now you’re locked in to a less efficient rate?

That can certainly happen, but the alternative is trying to build a business without any idea of what your currency might be worth in the near-future. By gambling you are, ironically, providing yourself a much more stable and certain platform to work from.

The same is true when it comes to suppliers. Some suppliers have started creating solutions for customers who would like to lock-in on a price for years to come in the hope of creating some stability for themselves.

For example, Total Gas & Power has created a Fix-For-Five solution for businesses that want to guarantee a price for energy consumption for five years. Not all suppliers offer deals like this one, so as ever it is worth shopping around to ensure you get the right deal for you.

There are no two ways about it – at the moment, things are looking a mite uncertain for small businesses. But entrepreneurs have always flirted with risk; the challenge is to make educated decisions and, where possible, seize opportunity.

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About Author

Letitia Booty

Letitia Booty is a special projects journalist for Real Business. She has a BA in english literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.

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