Feeling the squeeze

With the recovery only in its early stages, the last thing SMEs need is pressure from customers to cut prices. But with the Australian dollar soaring in recent weeks, that is exactly what you are going to get.

Woolworths chief executive Michael Luscombe has made his intentions clear, declaring he will be asking suppliers who jacked up prices because of the dollar to start pushing them back down again.

“If cost prices went up purely on the basis that the dollar went down, it’s only appropriate we ask, now that the dollar has gone back up, is there a good reason why you can’t adjust back down again,” Luscombe told the Australian Financial Review.

Back in March we looked at how companies could raise prices in the middle of the downturn, just because the dollar was down. A number of companies told us how they had carefully explained to customers that currency issues were forcing up prices, and said this had worked well.

That strategy – telling the very justifiable story behind a price hike – is one of the few ways you can actually manage a price rise without infuriating customers.

But the words of the Woolies chief should be ringing in the ears of the businesses who successfully used this strategy – now the dollar is going the other way, customers will increasingly demand to know why you aren’t dropping prices.

Given most companies order stock a few months in advance, importers probably have a few months to sort out their pricing strategies.

But you need to start thinking now about how your business will be affected by currency movements in 2010. And you’d better have a good pricing story to tell your customers, too.