There is an increasingly common trend for businesses to blame price increases on their investments in new equipment, systems, or facilities. But is this an acceptable reason to adjust pricing? No, not in the past, not in the future, and most definitely not today (more on that later). This shallow pricing justification places an undue burden on consumers and misrepresents the very nature of business investment.
Why? Because Investment is INVESTMENT – it’s not made for short term, quick returns. New Zealand Post boldly announces it’s ‘amazing new, highly efficient, parcel processing center’, and in the same announcement states that we must pay more because of this. One might well ask, how does ‘highly efficient’ translate into ‘increased price’? Quite simply – it translates to ‘we don’t want to wait and see if this will actually pay off, we’re going to charge you for the privilege of funding our risk’!
Business seem to have lost sight of the concept of value. Suppose a vehicle manufacturer invests in a new factory. Does the value of the car increase simply because it rolled off the line of a shiny new facility? Not at all; consumers expect the same, if not a better vehicle, at the same cost. They don’t expect a price hike just because the manufacturer decided to upgrade its plant.
Investment in business is not a ‘cost’ to be either passed on or absorbed. Investments are strategic moves meant to create assets, increase efficiency, and enhance the value of a business. When a company invests in new machinery or advanced systems, it does so with the expectation of reaping benefits such as increased productivity, reduced operational costs, and improved product quality. These benefits should naturally lead to higher profitability.
Suppose a tech company invests in the latest software systems. Should customers expect to pay more for their services because the company now enjoys streamlined operations and reduced internal costs? If anything, these efficiencies should allow the company to offer better services at the same price, or ideally, in the current economic environment, at a lower cost!
New investments may allow for a higher quality product; quality however, is no longer some delightful enhancement of a product – we’ve learnt how to consistently produce product to a good standard over the last 100 years! Businesses certainly must invest to maintain or exceed quality standards, but these investments are the ongoing cost of being in the game, not a surprise cost that justifies gouging consumers. Declaring the need to pass on the costs of quality investments to customers suggests a lack of foresight and poor financial planning.
The current trend of using investments as a scapegoat for price increases undermines consumer trust. Consumers today are savvy; they understand that the goal of any investment is to generate a return. When businesses claim that investments necessitate higher prices, consumers are increasingly cynical; what the manufacturer really means is, “We are going to charge you more for the same product so you can help us increase our profits, investments and business assets”. Either that, or they are effectively admitting that their investments are not yielding the expected returns and they are wanting to crowdfund their survival: and yes, we’ve seen that too!
Should we perhaps expect a return on our investment? If consumers are expected to help fund investments through higher prices, does that mean we are entitled to a refund when the investment pay off? Are we to see a share of the increased profits once the new equipment or systems start generating returns? Will prices suddenly go down as the savings flow through? Consumers are not investors; they are customers seeking value for their money. It also raises the question: if an investment doesn’t eventually lower costs or boost revenue to offset its initial outlay, was it a wise investment to begin with? When businesses invest wisely, they should achieve greater economies of scale, reduce waste, and enhance operational efficiency. These gains should translate into either lower prices or improved quality for the consumer. What kind of investment increases costs and necessitates increasing prices?
Clearly, we are aware of the legitimate cost pressures that businesses face today. Materials, transport, compliance, and labour expenses are all on the rise. Legislative changes, wage increases, import costs, global crises, and more; these indeed put significant pressure on prices. Businesses should be transparent about factors impacting pricing, but using investment as an additional excuse is disingenuous. It either obscures the true market cost situation or reveals an opportunistic attempt to bump prices higher than necessary under the guise of necessary investments.
The onus is on business to justify price increases firstly to themselves and their investors, then, if they so choose, to their clientele. If a company makes an investment, it should be able to demonstrate how this will eventually benefit the consumer, either through better products, improved services, or lower prices. Simply expecting customers to pay more because the company decided to upgrade its infrastructure is not only unfair but also bad business.
Businesses should to stop using ‘investment’ as an excuse for price increases. Investments are made to improve the business and are an asset, not a cost. They should lead to greater efficiency, higher quality, and ultimately, better value for the consumer. It’s time for businesses to own their investments, demonstrate their value, and stop passing the buck to consumers under the guise of necessary price hikes.