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Before You Raise Prices...

Sure, you'd like to raise your prices. But in today's zero-inflation economy, companies are finding it tough to squeeze an extra dime out of their customers. Consider a June survey of 321 companies by Duke University's Fuqua School of Business, which found that small businesses with less than $24 million in revenues expect to boost prices an average of 1.8% this year -- nearly half a percent less than they had hoped back in January.

That may not sound great, but it is better than the Goliaths are doing. In fact, large companies with sales in the $1 billion to $5 billion range actually expect to lower prices an average of 0.35%. What gives the entrepreneurs an edge? "Small businesses typically specialize in products that aren't available in the broader market," explains Saul Reebstein, a managing partner and specialist in small business at BDO Seidman, an accounting and management-consulting firm. "So in times of stable markets, they have the ability to raise prices more than mass merchants."

Of course, not every small business operates in a narrow niche. So how do you know if you can risk a price hike? First, check your competitors. If you're in a tight sector, such as retail, chances are you don't have much wiggle room. What about consultants and other service-oriented businesses? "If you're highly valued by your customers, you can go ask them to pay more," says Doug Reynolds, a senior technical assurance manager with accounting and consulting firm Grant Thorton LLP.

Technology & Business Integrators, an information-technology consulting firm with 80 employees in Woodcliff Lake, N.J., recently boosted its fees -- still below its big competitor, PricewaterhouseCoopers. So far, clients haven't complained. "But you have to really, really, really deliver service," says CEO Stan Goldman. Another plus for small businesses: They have more ability to penetrate new markets than large players do. And according to Mark A. Stiving, a pricing researcher and professor of marketing at Ohio State University's Fisher College of Business, "They tend to move in an upscale direction." In other words, as small businesses grow, they get what every company wants: customers with fatter wallets.


This article was originally published in the September 13, 1999 print edition of Business Week's frontier. To subscribe, please see our subscription policy.



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