Colgate-Palmolive is navigating a delicate tightrope, as it raises prices in North America for the first time in more than two years.
The company, best known for its toothpaste and dish soap, said Thursday it had raised prices in North America by an average of 0.5 percent in the fourth quarter, after cutting prices every quarter since the summer of 2009. The news emerged as the company reported a 5 percent decline in net income that it blamed on higher costs for raw materials.
Raising prices can be a risky move, because cash-strapped customers can drop even their favorite brands to save a few cents. Paychecks are already stretched thin and the government’s most recent data on jobs, also released Thursday, show that the number of people seeking unemployment benefits rose last week. There are signs that the economy is healing, but raising prices in North America had been something that Colgate, until recently, had been unwilling to try.
Many of Colgate’s rivals raised prices last year, as well as many restaurants, clothing stores and other industries. But Colgate had taken a different strategy, raising prices in fast-growing Latin America, where customers seemed willing to stomach the higher costs, but lowering prices in North America through discounts and other promotions.
In a call with analysts, CEO Ian Cook said customers were still willing to pay for premium products, like toothpaste for sensitive teeth, if they provided a benefit that customers want. Colgate is also aware that budget-conscious customers are generally more likely to trade down in other household products before swapping out their favorite toothpaste for store brands.
Overall, Colgate raised prices 3 percent in the quarter and 1 percent for the year, and Cook said price changes for the coming year would be “on the same order of magnitude.’’
The higher prices would come even though costs for many materials appear to be declining: Cook said he thought commodities costs would rise 2 to 3 percent this year, a far smaller burden than 2011’s increase of 12 to 13 percent. As Colgate paid more for raw materials, its profit margin fell 1.7 percentage points.
But Colgate, like other U.S. companies, probably won’t enjoy the same benefit that it got in 2011 from the weak dollar, which caused revenue raised overseas to translate into more dollars at home. Cook noted that other U.S. companies face the same challenge. “That is a global factor,’’ he said, “not a Colgate factor.’’