How to Avoid Customer Backlash over Price Hikes

2011 was certainly a water shed year for customers taking to social media and other channels to vent their frustration over price hikes. Backlash from angry customers forced Verizon, Bank of America and Netflix to reverse their planned price hikes. We wrote about price hike push back from customers in our post “The Most Annoying Fees of 2011.”

However, with business picking up in many sectors, Rafi Muhammed writes in his article for the Harvard Business Review, Don’t Let Customers Freak Out Over Price Hikes”, “chances are that your company will consider a price increase this year.” Rafi is a pricing strategy consultant and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow.

According to Rafi, a CFO advised him, “The key is not to let a price hike become emotional to customers, because that’s when they become irrational and ultimately leave.” In order to avoid the backlash that Verizon, Bank of America and Netflix faced from their customers, Rafi recommends businesses follow the five tips below.

  • Employ Bedside Manners. Make sure to explain to your customers why you are raising prices.
  • Offer Choices. According to Rafi, customers don’t like to be “cornered” and are more agreeable if there is an “option to save money.”
  • Keep Your Word.  Again, customers will be more agreeable if you leave their existing deal intact and only raise prices “to new purchases and renewals.”
  • Emphasize Value. If you are offering a good deal even with the price increase, demonstrate to your customers how it is a good deal.
  • Everyone Else is Doing It. Let your customers know that competitors are also raising prices but again, show how your prices are a better deal.

Hopefully, by following these tips, when it comes time to increase your prices you will not be met with angry customers.

Frequent-Flier Beware: The IRS May Come Calling

Last month thousands of Citibank customers received “1099-Misc” forms informing them “that miles they received for opening accounts last year (2011) produced taxable income.”

The 1099-Misc forms were met by surprise and furor by many of the recipients. The Wall Street Journal reported :

“The tax issue was only hinted at in the offer,” says Keith Sipos, a retired music teacher in San Diego who received a 1099 with $750 of income for 30,000 miles. “When I asked to have the miles rescinded, Citibank said I should have asked by the end of 2011. But I didn’t know about the tax until I got the form.”

Unfortunately for many of the 1099 recipients Smart Money reported that according to analysts, “the actual trips booked with the miles can be worth less than the amount of income reported by the credit card company.”

Are your frequent-flier miles taxable? Here’s a brief run down on what types of frequent-flier miles are taxable according to the Wall Street Journal article “Frequent-Flier Tax Traps.”

Taxable

  • Miles awarded as prizes.
  • Miles awarded for opening an account, such as a bank account.
  • Miles awarded for putting money into a mutual fund.

Non Taxable

  • Miles awarded by the airline for flying with them.
  • Miles awarded for credit card use.
  • Miles awarded for business travel.

Bottom line, consumers should concentrate their efforts on accruing frequent-flier miles through credit card purchases or through traveling and steer clear of mileage rewards by opening new accounts.

What is a 10% Purchase Option Lease?

A 10% Purchase Option Lease, sometimes referred to as a finance lease, is often selected by businesses who want to keep their options open to purchase the leased equipment at the end of the lease. This lease is most appropriate for businesses that aren’t ready to make a purchase decision at the beginning of their lease.

Here are three things to know about a 10% Purchase Option Lease:

1.  The lessee usually may purchase the equipment at the end of the lease at a fixed price equal to 10% of the original price.

2.  The monthly lease payment will be lower than the $1 Purchase Option Lease but may be higher than the Fair Market Value Lease.

3.  Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.

Not sure which type is best for your business? Please contact us and we will walk through the options with you.

What is a $1 Purchase Option Lease?

A $1 Purchase Option Lease is one of the two most common leases that businesses use to acquire equipment today. The other is a Fair Market Value Lease . Each type of lease is useful, depending on the type of equipment and the type of anticipated use. A $1 Purchase Option Lease is often used by businesses or schools when they know they will still be using the equipment for an extended period after the end of the lease term.

Here are three things to know about a $1 Purchase Option Lease:

  1. Provides businesses the ability to purchase the equipment for a $1 at the end of the lease term.
  2. Monthly payments are higher than a Fair Market Value lease because the lessee is now financing 100% of the equipment cost.
  3. Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.

Not sure which type is best for your business? Please contact us and we will walk through the options with you.

U.S. Manufacturers Looking Homeward

U.S. companies, especially manufacturers, are looking homeward in the face of slowing growth in China and the continued uncertainty in Europe the Wall Street Journal reported this week. What does this mean for U.S. businesses?

For United Rentals Inc., it means that the “world’s largest equipment rental company’ is increasing its spending by nearly a third in 2012 as more of its customers in construction and industrial choose to rent instead of purchasing their own equipment. For Carlisle Companies it means they are opening new plants in the U.S. and moving their tire production back from China.

For Union Pacific it means that the locomotive giant plans to “buy twice as many locomotives this year, spending upward of $400 million.”

United Rentals CFO William Plummer told the WSJ, “It is an environment that feels like it is building momentum. We are coming out of the depth of the recession and are starting to build momentum on the upside.”

U.S. manufacturers’ investing at home is more encouraging news for the U.S. economy.

Should Your Company Be Thinking Like a Startup

If “startups are hothouses for creativity and innovation, while large corporations are too jammed up with bureaucracy” is it time for companies of all sizes to “think like a startup”?

In Emily Heyward’s article for Fast Company this month “How Any Company Can Think Like a Startup,” she takes a look at what startups are doing right that businesses of all sizes can learn from. Heyward finds that:

 

  • Startups are flatter. Heyward believes this is an important trait because in a startup the people at the top are more engaged in the creative process and are “collaborating with us on strategy.” This is important because everyone is “on board that there’s never a question of whether or not the best ideas will move forward.” However, in a larger business, the higher ups generally are not as involved in the creative process and may shoot down ideas that have been closely worked on only to have to start again.
  • Startups have tighter timelines. Startups don’t have time to waste and belabor or second guess decisions. Tight timelines can help move the creative process along and ensure everyone is meeting their targets.
  • Startups value disruption. According to Heyward, the “best ideas, the ones that everyone remembers, are always disruptive.” Heyward argues that businesses can learn a lot by startups by embracing and valuing disruption.

Could your business benefit by acting more like a startup?

Fed Agrees Economy Improving

Yesterday was another good day for the economy with the Federal Reserve announcing that it intends to keep rates low until 2014. The stock market responded by gaining 83 points. CNNMoney.com reported, “Keeping it at historic lows as the Fed has done since 2008, is meant to stimulate spending by lowering interest rates on everything from mortgages to car and student loans.”

In addition to today’s news from the Fed, 2012 has begun with a flourish of economic stories reporting that the economy is picking up. Business Week is reporting that “Manufacturing in the U.S. grew in December at the fastest pace in six months.” A further sign of the economy’s growing momentum came from the Institute for Supply Management (ISM) that reported its factory index rose to 53.9 in December up froom 52.7 in November again beating expectations of economists. Any reading over 50 indicates expansion.

This week Suzanne Sataline reported for American Express Open Forum that most small businesses surveyed by the Manta SMB Wellness Index, a quarterly index of the state of small businesses, responded that 2011 was a successful year for their businesses. Among the findings of the survey that Sataline reported:

Small business owners tend to be optimists. Nearly three-quarters of those surveyed said the small business economy would improve this year. These folks are a determined lot: 62 percent ranked growing their business as their top New Year’s resolution–ahead of improving relationships with their family, working out more and eating healthier.

According to Pamela Springer, president and CEO of Manta:

Small businesses are the lifeblood of the national economy, and while things have been difficult in 2011, we see every day that small business owners are committed and hard-working and don’t take no for an answer.  In fact, our survey shows that 90 percent of small business owners are optimistic about their company’s growth in 2012.

Question is, what gains are you seeing in your business?

What is a Fair Market Value Lease?

A Fair Market Value Lease is one of the most common leases that businesses select in part because of its flexibility. Businesses often select a Fair Market Value lease if the equipment they are acquiring, such as technology equipment, rapidly loses its value once it is placed into operation.

Here are three things to know about a Fair Market Value (FMV) Lease:

  1. Offers the lowest monthly payments. An FMV lease is ideal for businesses that want the lowest possible payments and are unsure if they want to acquire the equipment at the end of the lease.
  2. Provides tax incentives.  Businesses may be able to deduct the monthly lease payments as an operating expense deduction.
  3. Provides the greatest flexibility at lease end. At the end of a FMV lease a business can decide to return the equipment, continue to pay for and use the equipment per your agreement with the lease finance company, purchase the equipment or upgrade it with newer equipment.

If you have any questions regarding the Fair Market Value Lease, please contact us.

Apple Shakes Up Bookshelf with iBook

Apple made news again by unveiling iBooks2, an updated and enhanced version of Its iBook software that brings to life interactive textbooks, and iBooks Author, a new app that “makes it free and simple to create interactive textbooks for the iPad”, and a new iTunes U aimed squarely at higher education. This app integrates with the new iBooks app and more than 100 courses created by universities around the world are available. Notably, iBooks is only available on the iPhone or iPad. According to Joshua Benton of the Nieman Journalism Lab in his article “The day the bookshelf shook: Four lessons for news orgs from today’s Apple iBooks announcements”:

One of the standout new textbooks announced today was E.O. Wilson’s Life on Earth, the Harvard professor’s attempt to rethink the biology textbook. Aside from what wisdom it will bring about the Mesozoic Era, perhaps its most interesting element is that it is being released chapter by chapter. The first two chapters are available for download now; the remaining ones will be available later at an “aggressive” price.

What does this mean for education? As an Apple Financial Services partner we believe that today’s announcement will drive an even greater demand for and use of the iPad in schools. Over the last two years we are leasing in increasing number of iPads to our charter school customers . Forrester agrees with our assessment of the growing demand for iPads in the classroom. In their blog post about today’s announcement, Forrester reports that “the iPad –which now outsells Macs in schools, according to Apple—is capable of much more than what has previously been produced.” Looks like Apple is intent on reinventing how our students learn.

Eight Overlooked Tax Deductions

Each year millions of taxpayers overlook money saving deductions and credits resulting in overpaying their taxes. Here are eight tips so you won’t become one of the statistics.

Section 179 Deduction. If you own a small or midsize business and acquired assets for your business in 2011, you may be eligible to deduct up to $500,000. For more information about this deduction, you can read our recent post “End of Year Tax Tips” as well as the IRS publication “Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act”.

Reinvested Dividends. Although this isn’t a deduction or tax credit, according to Kiplinger this is an “important subtraction that can save you a bundle.” If your mutual fund dividends are automatically used to buy extra shares, your tax basis in the fund is increased with each new reinvestment. Kiplinger advises that investors be careful not to forget including the reinvested dividends in your tax basis—failing to do so may result in double taxation of the dividends.

Additional Bonus Depreciation. If you are a business owner, don’t forget you can write off 100%of qualifying new (not used) assets—including most software, vehicles, and equipment in general.

American Opportunity Credit. Do you have a child in college? Then don’t forget to claim the higher education tax credits. Under the credit, taxpayers can get a reduction in their tax bill of up to $2500 per student provided the tax filers have an adjusted gross incomes of less than $80,000 a year (if single) or $160,000 (if they file jointly). An eligible family with two kids in college could get a tax credit of $5,000. Best part about the credit is that it covers all four years of college. In order to get the credit, you will need to fill out IRS form 8863.The tax credit is set to expire at the end of 2012.

Student Loan Interest.  If you are paying back your child’s student loan, and your child is no longer a dependent, your child is eligible to deduct up to $2500 of student loan interest you paid. However, parents can’t claim the interest deduction since they are not liable for the student loan debt.

Medicare Premiums for Self Employed. If you own your own business and are qualified for Medicare, you can deduct the premiums for Medicare Part B and Medicare Part D as well as supplemental Medicare (medigap) policies. According to Kiplinger, “you can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer.”

Retirement Accounts. Taxpayers have till April 17, 2012 to set up a new IRA or add to an existing IRA and have it count for your 2011 tax return.

Small Business Health Care Tax Credit. Small businesses that pay at least half of your employees’ health insurance premiums may be eligible for a tax credit of up to 35 percent of the premiums paid. You can find more information at the IRS web site.