Tax measures taking effect in April mean that businesses are facing rising wage costs in 2025. As a result, many businesses are looking at whether price increases could help them manage the financial impact without losing customers.
High Street retailer Next recently announced a price increase of 1% on some clothing items to help offset an anticipated £73 million rise in staff wages and taxes. Wages are increasing due to changes announced in the 2024 Autumn Budget, that start in April 2025, including:
- An increase in employers’ National Insurance contributions from 13.8% to 15%.
- A rise in the National Living Wage from £11.44 to £12.21 per hour.
Next’s 1% price increase, despite being below the rate of inflation, reflects a broader trend among businesses. The British Chambers of Commerce business group recently said that over half of companies plan to raise prices in the coming months to cope with higher costs.
For businesses like Next, keeping the price increase modest allows them to avoid alienating their price-sensitive customers. Next acknowledged that the price increase is “unwelcome”, however they feel their analysis supports their strategy. They have observed a trend in shoppers choosing mid to higher priced items instead of buying cheaper items. They are not necessarily spending more overall but are buying fewer, slightly more expensive items. This is a trend Next expects to continue in the short term.
This shift in behaviour has influenced Next’s decision on pricing strategy. By targeting price increases on product lines where customers may be less sensitive to paying more, they can maintain value for their customers while managing their margins.
There is no doubt that rising wages costs will present challenges to businesses over the coming months. However, if Next have got their sums right, they are expecting to be able to increase their profits by 3.6%. This demonstrates that a carefully planned pricing strategy may also help you to adapt to the rising costs while maintaining competitiveness in these challenging times.
If you need help with an analysis of how changing your pricing strategy could help your business, why not give us a call? We would be happy to help you!
