Inflation and Pricing
These 4 articles on inflation and pricing are part of the graduate class I teach at NYU (New York University), the How to Make Money, and the Global, Profitable & Ethical series. The article is interactive. You will be able to respond to questions, see responses in real-time from others and share your comments with a community of company executives, managers, business owners, and students.
I. What is inflation?
The cost of a Big Mac increased by 43% in the US and 57% in China. A Big Mac used to cost $4.06 back in 2012. Today, if you try to buy one with a $5 bill, you won’t get one. It costs $5.81. In the past, it was difficult to explain the concept of inflation to students in the US because they were not aware of it. In 2021, inflation reached 7% in the US, and it’s on the cover of all major newspapers.
Inflation. Impact on small businesses.
Jenny is a small business owner. She got a contract to sell shoes to a major retailer for $14, the cost to make them was $10. She was delighted when she got the contract. She told her friend, Wendy, to come work for her.
Wendy was paid $140, and her living expenses were $100. She was able to save 22%. If you are reading this in Switzerland, assume that was per day. If you are reading it in Vietnam, per week.
Jenny had a problem. Inflation. Her cost kept increasing every year, on average 5% per year. She tried to increase prices to the retailer, but she was told they could find another vendor who could make it for the same price. After a few years, she wasn’t making money anymore, now she is losing money.
Inflation. Impact on workers
Jenny tried to explain to her friend Wendy that she couldn’t increase her wages because she wasn’t making any money. Inflation has a tremendous impact on small businesses and wages. The Wall Street Journal reported that wages increased by 4% in 2021, the most in 20 years. Inflation increased by 7% though, the most in 40 years.
What can small businesses do about inflation?
What advice would you give Jenny?. Scan the QR code below or click here to share your thoughts.
Next, let’s learn about pricing. Salaries in El Paso, Texas are ½ than in New York. Should we sell at a lower price in El Paso? What are local, national, and global price lists? Would you increase prices by 4% or fire ½ of the team?
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