At one point or another, most product sellers and marketers have to raise their prices. For many, this can be a stressful exercise since increasing prices may disappoint or even anger customers. Price increases may not be a bad thing per se, and may be a necessity depending on the economics of the situation, but there are steps you may want to consider before executing a hike.
Step 1: Test the Price Increase First
Price increases should be done carefully and with as much precision as possible to mitigate any negative impact. One powerful way to reduce your downside exposure is to go through a test run, either by floating the idea of a potential increase via your public relations team or running an actual increase on a small part of your consumer base. Let’s say you sell merchandise out of four locations. You can try a month-long trial increase at your location with the lightest traffic and see how it affects sales and customer feedback. You may also try raising the prices of just one product at a time. You may find that your buyers are not very responsive to an increase in prices. In such cases, you may not have to worry much about how to handle the increase. Conversely, your trial may chase away substantial numbers of customers or potential customers. If you see these results, you might consider other ways to cut costs or add extra value before executing the increase.
Step 2: Use Psychology to Your Advantage
Contrary to what you may have learned in your ECON 101 classes, consumers do not behave perfectly rationally. Rather, consumers often make purchase decisions for emotional or psychological reasons. If you are able to leverage buyer psychology to your advantage, you may be able to sell your price increase without taking much of a hit in terms of customer engagement. For instance, people tend to appreciate and be persuaded by stories. Try thinking of a story to attach to your product, service, or even the price increase itself. If the story is able to increase value in the eyes of consumers, they may be willing to pay even more for it than their prior buying habits indicated. TIP: Take a page out of the Significant Objects Project, in which Joshua Glenn and Rob Walker were able to generate US$3,612 in sales from US$128 in garage sale products. One way to create a story for your product is to highlight the person, or people, who made the product. If you can communicate a connection between the product’s maker and its future owners, you might generate enough psychic value to justify a price increase. You can also use price points to your advantage. For example, raise the price of a product to $99 instead of $100, or $8.99 instead of $9.00. Seeing an extra digit or larger first number often creates a disproportionately large barrier in the consumer’s mind.
Step 3: Communicate the Price Increase Honestly and Empathetically
Depending on your product or service, it is a good policy to communicate the price increase well ahead of its actual date of effect. If your customers are billed monthly for subscribing to a magazine or eNewsletter, try to stay one billing cycle ahead. You may also want to package another deal with the price increase as a form of compensation. If higher input costs or regulatory burdens force you to raise your prices, it may be a good idea to pass that information along to your customers. Research from Sarah Maxwell in “Pricing Strategy & Practice” showed that customers tend to perceive prices as “fair” when they moved according to costs. Being upfront about why you are raising prices, and expressing some sympathy for the burden it may present some of your loyal customers, may even serve to bond people to your brand. After all, people want to transact with those they perceive to be honest and upstanding. If you feel saddened for your buyers because of the potential increase, it likely only helps to share that with them. Above all else, you should avoid communicating, or even hinting, that the price increase comes from the motivation to earn more revenue or higher profits. Try to make sure your customers don’t feel squeezed, taken advantage of, or seen as a means to an end.
Step 4: Use an Advanced Pricing Tool
Thankfully, you don’t have to experiment through your pricing strategy alone. Consider using business software, such as the Advanced Pricing Add-On through Intuit QuickBooks Enterprise, to customize and even automate your product pricing. With Advanced Pricing Add-On, you can:
- Create custom pricing rules that generate new, highly targeted price changes whenever your cost of goods increases.
- Set quantity discounts or implement special promotions to help maintain customer morale.
- Establish different price rules based on an assortment of factors, even vendor or customer-specific applications.
- Create automated updates based on economic or competitive variables. You still maintain the flexibility on enforcement and may always override previous settings.
Price changes, especially increases, should not be taken lightly or haphazardly. By utilizing best practices and leveraging the appropriate business tools, you can help ensure your customers accept or even embrace a price increase gracefully.