When Little Caesars recently raised the price of its $5 pizza for the first time in 25 years, it got a lot of attention.
The 11% increase is not much considering the overall cost of the pizza now, which is $5.55. However, the fact that one of the more popular pizza franchises did so is important to note.
Little Caesars Raising Price on Hot-n-Ready Pizza for First Time in 25 Years
Little Caesars started franchising its stores in 1962, and it currently has more than 5,000 outlets around the world. When it comes to pricing for the more than 4,000 outlets in the U.S., the price is the same. And this allows uniformity across the board so customers can expect to pay the same amount no matter where they are. This is one of the benefits of having a franchise.
By paying the same amount for the supplies, marketing, and other related costs, franchisees save money on their overall operational costs. And this makes it possible to offer $5 pizzas for 25 years without increasing the price. This is one of the benefits of having a franchise, but not everyone can afford to get into the more popular franchises like Little Ceasars. But pricing challenges affect all businesses, no matter how big or small.
Franchisees Facing Inflation Challenges, Supply Chain Crisis
Many factors go into raising the price of the products or services you provide to your customers. When it comes to franchises, the price is generally set by the company. This takes away the pressure of justifying the cost increase because the franchise sets it. However, if you don’t own a franchise and you run a small business, price increases can be challenging.
Considering the past two years of the pandemic along with higher wages, inflation, and supply chain issues, price increases are expected. But finding the right balance is extremely important because you don’t want to drive your customers away. Therefore, you should use economics to set your prices or price elasticity.
As a small business owner, knowing how much more of your product customers want when the price goes down or how much less they demand when the price rises will allow you to better gauge the price you can set. And this is the elasticity of demand for the products and services your business provides.
Beyond this, you also must look at some different characteristics of your products or services. This includes whether they have substitutes, is it a luxury or necessity, how differentiated it is, and last but definitely not least, who is paying for your products?
As a small business owner, you can make changes quickly if you know the price elasticity of demands for what you offer. The key is to set your pricing accordingly to better serve your customers for the long run.