According to Chris Lema in his article How to Announce Pricing Changes (Without Ruining Everything), it's not the price change itself that you should be worried about but how you present it to your customers.
He believes that any pricing change needs to be the main focus of communication, not sandwiched between other (relevant or irrelevant) issues and you should clearly explain the rationale behind the price change.
If you are increasing prices, be prepared to show proof of how your costs have increased and how other companies are experiencing similar issues. The better you shape your pricing change, the better your customers will embrace it and ultimately stick with you.
Increase value for the customer
A price is supported by the customer’s value perception. It might be that you need to re-work a price change announcement from the customer's perspective to ensure that they fully appreciate your value.
Keith Perhac, co-founder of Summit Evergreen, believes that by using tiered pricing, allowing customers to pick a product for themselves at a price they prefer, you create a sense of maximised value.
If you offer products at, say, £45, £99 and £150 then you have widened the reach of your audience. Lower priced options can be a gateway for new customers who may eventually graduate to higher priced products.
Many businesses get their best long-term results from increasing both price and value. Others find that they can cut their own costs while increasing value and thereby offer an almost irresistible proposition. A key lesson about value and price is that these elements can be adjusted without changing what it actually costs you to make a product.
The deeper the businesses' understanding of what its customers value, the greater the opportunity to optimise pricing. The most advanced companies now use behavioural insights to drive a more sophisticated understanding of customers' response to price and can therefore improve pricing dynamically over time.
If you have a reputation for quality then you can emphasise that any price increase has been carefully thought through and it is only being taken to ensure continued quality.
If you have a less than easy record with a customer you should stress how a price increase will allow you to begin addressing some of their issues and improve the overall quality of service. Naturally, back this up with a commitment to follow-through.
How to present a price increase - and keep your customers happy
In Mark Hunter's article "How to Sell a Price Increase to Your Customers", he acknowledges that this is not an easy task; however, he points out that when discussing a price increase in a B2B environment, it is important to remember that your customers have probably had to have the same discussion with their own customers. A key part of your conversation is to emphasise that any price increase will ensure product quality.
You should:
- Show empathy for the customer, but remain firm. If there’s any hesitation on your part the customer will likely try to exploit it in the form of a price concession.
- Communicate all the steps you’ve taken to avoid a price increase. This can include ways you've already cut costs or how the increase is the only way to maintain quality and service. You can point out the time lag between this price increase and a previous one.
- Give the customer lead-time to make adjustments in their information systems and allow at least one more order at current prices.
- Do not show illogical favouritism during a price increase. Different pricing levels are fine as long as a customer who is not receiving a price break can understand and accept the price change.
- A price increase should only appear on an invoice after every person involved has been notified. Allow at least one invoice to contain notification of the pending increase in price.
Make sure every one of your customer service employees are fully aware of when the price increase is to be communicated, the reasons behind it and the logistics for implementation. It might help if senior executives make phone calls to key customers.
In my blog, Pricing Changes: the Good, the Bad and the Ugly, I emphasised the importance of how new prices should be implemented to:
- Reflect the value you provide versus the competition
- Match what the market will truly pay for your product or service
- Support your brand
- Enable you to reach your revenue and market share goals
- Maximize your profits
- Reflect price sensitivity
Timing
Sometimes price increases are done in stages but if you want to do it in one go you must pick the right time. Your business's seasonality, growth stage and sales cycle may affect your choice.
Analysis suggests that the more frequently that companies can, or do make adjustments to prices, then the greater the impact will be of any pricing decisions.
Related Posts
Pricing Changes: the Good, the Bad, the Ugly
All about the ABCs: Always be Changing your Pricing
Why Should We Care about Value?
How to Execute Value-based Pricing
4 Secrets for Unleashing the Power of your Value
Forget Cost-plus Pricing – Sell Value Instead
When Should a Change in Cost Price Affect your Selling Price?