At the start of the financial crisis, I wrote this blog about how to keep your prices up in a recession. For many businesses, in terms of strategic marketing imperative, it was a case of keeping their prices at pre-recession levels for the past 7 years – against a slowly rising cost base, with the consequent squeeze on profits.
Many of our clients are seeking advice about how to raise their prices but are worried they will start loosing business or upset their clients.
Its VERY easy to destroy a long standing business relationship by not thinking it through, and implementing it in a clumsy way.
For your business it’s important to recover lost ground, but it’s not always music to your customer’s ears!
However, it’s essential that your customers are not left with the impression you’re putting prices up just because you want a better profit margin. Even the slightest hint of greed will really damage your reputation.
Just look at the spat between Unilever and the Supermarkets.
Here are 7 ideas to consider in your strategic marketing plan, before you pick up the phone.
Never hide a price increase or try and implement it by stealth. Its the fastest way of really upsetting a customer, for the long term, and its amazing how many businesses think that this strategy is acceptable.
You must take time to explain to your customers upfront that your prices will be raised. Tell them in person, with a clear justification and transparency as to why you are asking for more money, and why your product is worth more now than when they initiated the commercial relationship. It would be wrong to suggest that it will work every time with existing customers, but with transparency, there will be greater understanding.
With the evolution of your product, service, product range, your offering will offer your customers greater value. The higher price will allow you to better serve your customers and give them greater benefits. So you don’t need to apologise and also, they are unlikely to drop you as a supplier if you’ve proven your worth.
You also can try and schmooze them a little – a simple “thank you” for the business and then hit them with #1 – a big thank you will soften the blow.
Sometimes, because of your own cost structure, you really do need to raise your prices. This needs to be explained to your customers, detailing why you are raising your prices and how the additional funds are being used. If your cost structure is going up, this need explaining to your customers; you may be spending more money on your product, for example paper costs if you are a printer; software costs if you are offering accounting services.
If you can add a valuable feature to your offering, there is now a genuine reason to review your pricing structure. Older customers will understand that, since they joined you, your product has evolved. With product evolution and growing feature set, the solution is worth more, and the pricing will reflect that.
Key to successfully raising prices is to add more value. This will soften the blow. Psychologically, it’s counter-intuitive for anyone to pay more for the same thing they got for less before. It’s easier to justify the price increase by adding features or providing some other type of added value.
With the introduction of a justified and transparent price increase, as an extension of #4, you can create focus on additional value, by offering an alternative, lower-priced option. This is actually a classic sales close; with 2 options, a decision needs to be made, focusing the customer on the value that the new product elicits, rather than the price increase itself. The lower priced product can even be marginally cheaper than what the customer currently pays.
Give customers the chance to buy an “early upgrade” package before prices go up. Car Dealers are experts at this – they enjoy a revenue blip from promoting beat the increase offers. For the appropriate offering, your customers will also be happy that they got a chance to buy before the price increase.
Author Matthew Simmons