Whether due to an increase in input costs, inflation, or other market factors your business will, at some point, need to increase the price at which you sell your products or services.
The most common challenges that arise around this issue is 1) finding that perfect space where the price is high enough to provide you with an adequate margin, but not so high as to frighten customers away and 2) how and when to raise prices.
Here are a few tips and strategies that won’t send your customers running to the competition.
Keep in mind that price isn’t a deciding factor in many instances; it’s more about how you serve customers along the sales journey and the experience they enjoy. It can be just as detrimental to your brand and business to be known as the cheapest in the marketplace. It’s better to know your market inside and out, determine what your customers really need, differentiate yourself (find your value proposition), and price accordingly.
When implementing price increases as a result of added product/service bells and whistles make sure that any added value is crystal clear to your customers.
Test your pricing: increase your price incrementally in order to gauge customer reactions. An increase (or decrease) is not set in stone so you can play with it as you go along. (Caution: do not increase and decrease prices like a yo-yo; customers will become confused at best, angry at worst and jump ship faster than you can say ‘But I just lowered my price again!’
Another important note: price increases should be well-founded and you should always work to ensure that customers understand the ‘why’ behind it. See point #2.)
Try price anchoring: this tactic offers a price that provides customers a frame of reference for valuing a certain product. For example, two TVs might be priced as follows: a 50” for $1,000; a 48” inch for $600.
Customers will typically perceive that the $600 TV offers the best value since they’re paying $400 less for a TV that’s only 2” smaller – and that was the seller’s intention. The $1,000 TV is meant to make the $600 TV looked like a bargain in comparison.
Provide two or three different price options (i.e.: lower, middle and high end) for basically the same product/service. This allows customers to choose a category where they see the most value for the price – and each category will provide you with adequate return since sales are typically higher when customers have the freedom to choose which product/service category best fits their needs. Remember though that as the price increases so, too, should the value of that category.
Whenever possible inform customers that a price increase is imminent. Many companies send a letter or email late in the year announcing that the price of X will increase by Z amount (% or $) in the new year. Whichever way you choose to share the news, building expectation around the event will soften the blow and allow your customers time to prepare.
Make it easy for customers to see which products/services have increased and which have not (e.g.: provide a detailed list).
Remain confident: price increases are as impossible to get away from as paying taxes. If you present justified and clear information regarding upcoming price increases in a confident manner, customers won’t be looking for the crack in the door where they can start to resist or argue.
Price increases in the world of business are a fact of life. As challenging as it can be, being prepared is key to implementing your strategy effectively.
If you need help communicating the value versus price of your product or service, or you need help figuring out how to adjust your prices to what the market will bear, contact us – we can help!
Gérard Boivin, CEDEC Small Business Support Business Advisor, brings 25 years’ experience as an entrepreneur to help SMEs uncover their hidden assets, overlooked opportunities, and undervalued possibilities. CEDEC Small Business Support offers powerful frontline support to help your small business innovate, grow and prosper. For more information or to book a free 360° Screening of your small business visit: www.cedec.ca/sbs