Outlook for Price Increases for 2024

Outlook for Price Increases for 2024

I am often asked what my prognosis is regarding price increases for the coming year. In this issue, I will be offering some opinions, facts and advice relating to annual price increases. At LPS, we are hyper-focused on price changes. We have been tracking price changes, by item, for over a decade. At this time of the year, when we are receiving price files from suppliers on a near-daily basis, we get the bigger picture across a range of manufacturers about their pricing policies.

Data from multiple vendors over many years brings pricing trends into sharp focus. Most manufacturers raise prices year-over-year at a rate that is at least two percent above the rate of inflation. This policy seems to function well as most customers never complain. At some point in the past, manufacturers determined the selling price of an item by establishing their raw materials cost, adding in labor and overhead and a profit margin. Some may have even considered competitors’ pricing. Once that exercise was completed, from that point forward a multiplier was used to determine the price for that item each year. We can confirm this practice, because in price file after price file, we see every single item being increased by the same percentage. With many price files consisting of thousands of SKU’s, it’s easy to see why an item-by-item pricing analysis is avoided. After a decade, an item priced in this manner can end up being far more expensive if compared to what the item would be priced at in today’s dollars vs. 2014 dollars. Since most users accept these increases as “normal” the cycle will continue unabated.

The Lasting Impact of the Pandemic

As we are all still acutely aware, the Covid-19 pandemic wrought havoc on supply chains worldwide. We all still remember up to 100 container ships sitting off Long Beach and how the cost of a shipping container skyrocketed to over $22,000 at its peak. But most people aren’t aware that the cost for shipping containers is now back to or below pre-pandemic levels.

The Lasting Impact of Years of Low Inflation

Until the pandemic, inflation had averaged 2 - 3% annually. Manufacturers who wanted to raise prices at percentages above 3% had no justification to do so. Price increases were kept in check for years. Manufacturers complained loudly that their prices were kept artificially low.

The Covid-19 pandemic let that genie out of the bottle. Manufacturers now saw an opportunity to “make up for lost time.” What goes up, in this case, never comes down. The baseline was just reset. As long as market share didn’t erode and blowback is nonexistent, the pandemic was the golden opportunity to ratchet prices higher. That is the root cause of inflation we all complain about today.

What can you do to change the trend?

The best advice I can offer here is to make your voices heard by the manufacturers. Keep in mind that at LPS, we always price items on a cost-plus basis. So, if you see a price increase from LPS, it’s because our costs increased.

Second, don’t be permanently married to a specific brand. LPS will help you find cost-saving alternatives. Take the time to evaluate them and if they meet your needs, switch brands. Your loudest voice will be heard when you hit them on the bottom line.

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Wishing you a happy holiday season.

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