Business Owners Struggle to Keep Pace with Rising Costs as Prices Remain Flat
The recent surge in costs is leaving business owners feeling squeezed. According to the Bank of America's Business Owner Report, an astonishing 77% of entrepreneurs report a rise in costs - on average by 18% - yet they have only managed to increase prices by a modest 12%. This significant shortfall is quietly eroding profit margins and forcing leadership teams into reactive decisions.
As core inflation remains stubbornly high, labor shortages drive up wage bills, and consumers become increasingly price-sensitive after experiencing elevated living costs, retailers are reporting customers trading down. Subscription businesses are witnessing higher churn rates, while even traditionally resilient sectors like beauty and home goods have noted slower discretionary spending.
To mitigate this impact, companies are turning to behavioral pricing techniques - the psychological mechanisms that influence how customers perceive and evaluate prices. By harnessing these insights, leaders can boost revenue without pushing prices beyond what customers will accept.
The key lies in understanding how customers make purchase decisions, which is often a complex algorithm weighing price against perceived value, shaped by emotions and context rather than cost alone. Businesses can adjust variables at the point of purchase that meaningfully shift perception.
Three powerful behavioral levers are:
1. **Price anchoring**: Setting a higher-priced option upfront creates a subconscious reference point, making subsequent prices feel more affordable.
2. **Choice architecture**: Structuring options in a clear "good, better, best" ladder influences customer interpretation of value.
3. **Choice overload**: Simplifying the decision by reducing options or removing unnecessary noise reduces cognitive load and allows businesses to capture lost value.
Unlocking these behavioral nudges requires disciplined experimentation, with teams testing real-world products, channels, and customers to see which shifts genuinely influence behavior. By starting small, learning quickly, and scaling what works, companies can build the evidence needed to strengthen confidence in their pricing strategy.
For leaders navigating today's market, applying a behavioral lens to pricing is one of the most underestimated growth levers, particularly as inflation cools unevenly, capital becomes more expensive, and investors scrutinize paths to profitable growth. By focusing on how customers actually make decisions, behavioral pricing has the potential to strengthen every part of your commercial strategy.
In reality, businesses can already reap significant benefits from harnessing behavioral insights in their pricing strategies. A recent healthcare client, for instance, saw a 23% uplift in spend per session for new customers by simply improving how prices and value were presented on their website, without changing a single price point.
As rising costs continue to affect both businesses and consumers, companies best positioned to win will be those that build pricing strategies rooted in both commercial and behavioral insight. By combining sound economics with an understanding of how people truly decide, they can defend margins, guide customers toward better choices, and convert more of the value their business already creates.
The recent surge in costs is leaving business owners feeling squeezed. According to the Bank of America's Business Owner Report, an astonishing 77% of entrepreneurs report a rise in costs - on average by 18% - yet they have only managed to increase prices by a modest 12%. This significant shortfall is quietly eroding profit margins and forcing leadership teams into reactive decisions.
As core inflation remains stubbornly high, labor shortages drive up wage bills, and consumers become increasingly price-sensitive after experiencing elevated living costs, retailers are reporting customers trading down. Subscription businesses are witnessing higher churn rates, while even traditionally resilient sectors like beauty and home goods have noted slower discretionary spending.
To mitigate this impact, companies are turning to behavioral pricing techniques - the psychological mechanisms that influence how customers perceive and evaluate prices. By harnessing these insights, leaders can boost revenue without pushing prices beyond what customers will accept.
The key lies in understanding how customers make purchase decisions, which is often a complex algorithm weighing price against perceived value, shaped by emotions and context rather than cost alone. Businesses can adjust variables at the point of purchase that meaningfully shift perception.
Three powerful behavioral levers are:
1. **Price anchoring**: Setting a higher-priced option upfront creates a subconscious reference point, making subsequent prices feel more affordable.
2. **Choice architecture**: Structuring options in a clear "good, better, best" ladder influences customer interpretation of value.
3. **Choice overload**: Simplifying the decision by reducing options or removing unnecessary noise reduces cognitive load and allows businesses to capture lost value.
Unlocking these behavioral nudges requires disciplined experimentation, with teams testing real-world products, channels, and customers to see which shifts genuinely influence behavior. By starting small, learning quickly, and scaling what works, companies can build the evidence needed to strengthen confidence in their pricing strategy.
For leaders navigating today's market, applying a behavioral lens to pricing is one of the most underestimated growth levers, particularly as inflation cools unevenly, capital becomes more expensive, and investors scrutinize paths to profitable growth. By focusing on how customers actually make decisions, behavioral pricing has the potential to strengthen every part of your commercial strategy.
In reality, businesses can already reap significant benefits from harnessing behavioral insights in their pricing strategies. A recent healthcare client, for instance, saw a 23% uplift in spend per session for new customers by simply improving how prices and value were presented on their website, without changing a single price point.
As rising costs continue to affect both businesses and consumers, companies best positioned to win will be those that build pricing strategies rooted in both commercial and behavioral insight. By combining sound economics with an understanding of how people truly decide, they can defend margins, guide customers toward better choices, and convert more of the value their business already creates.
The conundrum faced by businesses is indeed a pressing concern 
As prices remain flat, the burden of rising costs is being felt acutely, squeezing profit margins to the point where reactive decisions are necessary 
However, instead of simply passing on increased costs to consumers, companies can harness the power of behavioral pricing techniques 
By leveraging psychological mechanisms that influence customer perception and evaluation of price, businesses can boost revenue without sacrificing competitiveness 
Rather than relying on cost alone, companies must adjust variables at the point of purchase to meaningfully shift perception 
The three powerful behavioral levers outlined - price anchoring, choice architecture, and choice overload - offer a promising starting point for businesses seeking to strengthen their pricing strategy 
, like 77% is a crazy high number, what's gonna happen when they just can't keep up with costs? I feel bad for them trying to adapt but at the same time, it's great that some are figuring out this behavioral pricing thing 
, I mean i get it, cost inflation is real but 18% increase in costs on average just doesn't cut it with a 12% price hike lol 
, retailers need to step up their pricing game and get creative with these behavioral pricing techniques, gotta keep those profit margins intact 
. It feels like they're being squeezed and can't even raise their prices without going out of business.
. Subscription services are seeing higher churn rates? That's just a sign that businesses aren't doing something right.
. Like, using price anchoring and choice architecture to make customers think they're getting a better deal than they actually are 
.
. its all about understanding how customers make decisions, not just throwing more money at it 
& choice overload 
.
... that's the kind of growth businesses should be aiming for 
prices havent increased enough & costs are just keepin on risin 
