As April 2025 draws closer, UK businesses are bracing for the hefty increases in wage costs from the changes announced in the 2024 Autumn Budget. To help offset these rising costs, many businesses are reviewing their pricing strategies. High Street retailer Next recently announced a 1% price increase on select clothing items to help offset an anticipated £73 million rise in staff wages and taxes. 

Let’s take a look at their approach and see how it could help others…

The Background…

The Autumn Budget included a rise in employers’ National Insurance contributions from 13.8% to 15% and an increase in the National Living Wage from £11.44 to £12.21 per hour. For many businesses, these changes created a considerable financial challenge.

The British Chamber of Commerce have reported that over half of UK businesses plan to increase prices in the coming months to cope with higher costs. 

Next’s approach

Next’s pricing strategy provides a case study in how businesses can respond to rising wage costs:

1. Targeted Increases: Rather than implementing a blanket price rise, Next chose to restrict price increases to specific product lines. This targeted approach allows them to address their financial pressures while minimising the impact on price-sensitive customers.
2. Modest Adjustments: The 1% increase, which is below the current inflation rate, demonstrates a balanced approach to managing costs without significantly alienating customers.
3. Consumer Behaviour Analysis: Next based their strategy on internal research that had shown shifts in customer behaviour, noting a trend towards consumers buying fewer, slightly more expensive items.

Lessons we can learn…

Drawing from Next’s example, here are the key strategies other businesses could consider:

1. Incremental Adjustments – Implement small, targeted price increases to off-set cost pressures without overwhelming customers. This approach can help maintain customer loyalty while addressing immediate financial strains.

2. Focus on Value Perception – Consider emphasising mid-to-higher priced items in your product range. This strategy aligns with the trend Next observed and could help maintain profitability.

3. Monitor Customer Behaviour – Regularly analyse your customers’ spending patterns. Understanding these shifts can help you identify where price increases are less likely to deter purchases.

4. Diversify Cost Management Strategies – While pricing adjustments are one tool, consider a multi-faceted approach:

• Enhance Efficiency: Look for ways to streamline operations and reduce overhead costs.
• Review Supplier Contracts: Negotiate better terms with suppliers to offset increased wage costs.
• Explore Automation: Where possible, implement technology solutions to improve productivity and reduce labour costs.

Planning Ahead

Before the April 2025 changes take effect, if you haven’t already looked at the following, it could be helpful to; 

1. Complete a Financial Impact Assessment: Calculate how the new measures will affect your wage bill and overall costs.
2. Develop a Pricing Strategy: Based on the results of your assessment, create a pricing strategy that balances cost recovery with customer retention.
3. Communication: If you plan to increase prices, consider how to communicate the change to your customers.
4. Explore Government Support: Look into available support measures, such as the increased Employment Allowance, which will rise from £5,000 to £10,500.

Next have projected a 3.6% profit increase that suggests that through careful planning, it is possible to find a positive result from the enforced changes. 

Though Next’s example is impressive, the best solution is one that works well for your business and for your customers. It’s therefore important to make sure it’s robust and well thought through.

As always, if you’d like us to help you update your pricing strategies, or to use us as a sounding board as you consider the process, please get in touch.