Most business owners would agree that pricing is one of the most important elements in the marketing mix. Because it costs money to produce, promote and distribute products, pricing must be able to support all of these activities to generate sales and drive revenue for your organization.
Unless you have a monopoly on your market or industry, raising prices without warning your customers and clients ahead of time can be detrimental to both your brand and your bottom line. This is especially true during a slow or depressed economy, wherein consumers are budget-conscious and sensitive to price adjustments.
With those concerns in mind, here’s how to raise prices in ways that will benefit your business while continuing to deliver the satisfaction your customers expect.
1. Always Research Your Market and Your Competition
By researching what your competitors are charging and what customers are willing to pay for similar products and services, you can set prices that are in line with your brand and your market.
Speak with industry peers, and find out what they’ve charged for similar work. You’ll also want to keep abreast of industry data, including respected industry surveys and pricing guidelines published by professional associations.
Most importantly, gauge your target market’s perceived value of your product or service. If your existing clients are satisfied with the quality of your work or your product offerings, then you have more room for negotiation when it’s time to adjust your rates. For customers who need a bit more convincing, explain your price changes in terms of both the investments you’ve made in your business and market fluctuations (e.g. the rising cost of supplies and equipment, raw materials, fuel, etc.) that affect your ability to deliver better products or services to your customer base at a lower price.
2. Establish a Pricing Strategy
Innumerable books have been written on pricing strategies and the various activities aimed at maximizing profitability for products and services. Carefully analyzing the market and executing pricing decisions based on actual and perceived customer value allows you to achieve pricing power, or the ability to raise prices without decreasing customer demand.
One way to attune customer behavior to price hikes is by incorporating price increases into your business plan. Caron Beesley of the U.S. Small Business Administration recommends reviewing your pricing structure on a monthly, quarterly and annual basis. This of course depends on external factors, including but not limited to the current economic climate, wholesale prices (if you’re selling merchandise or similar products) and the general expenses of doing business. Moreover, building incremental price increases into your overall business strategy will help you avoid having to raise prices dramatically, a move that’s sure to make your customers balk and reject without discussion.
3. Experiment With Different Pricing Structures
Cross-selling and upselling your product or service are pricing tactics that can generate higher sales without increasing unit prices outright. Companies often have success with these techniques, since customers receive more options in terms of value-adds (e.g. more features, greater functionality, additional service hours, etc.) that are clearly advertised. For example:
- Cross-Selling: If you have more than one type of product or service to offer your target consumer, then cross-selling can help you make more sales and generate greater profits. For example, offering basic, premium and deluxe packages with varying levels of functionality and customization provides appeal to clients looking for flexible service offerings that fit their unique needs and requirements.
- Upselling: Selling a higher-end version of your product—such as showing the same merchandise in multiple versions but with different features—is another way to convince customers that paying a higher price is worth the value they’re getting in return. For instance, if you’re a web designer, adding hosting services at a discount is one way to make your sale of design services more profitable.
Conversely, break your product and service bundles into individual pieces that sell at higher prices than what customers would get in packaged deals. Like the value meals sold at fast-food chains, customers may be persuaded to purchase the higher-priced bundle to benefit from the combined discount.
4. Warn Customers Ahead of Time
Timing when and how to communicate price hikes to your customers can either strengthen brand loyalty, or cause customers to run to the competition. Most of your customers will expect a price increase eventually due to the normal ebbs and flows of supply and demand, as well as inflation.
So, if you plan to raise prices at the start of the year, notify your customers by the previous November to give them adequate time to prepare, evaluate and negotiate rates. Give existing clients the option of renewing their contract early to lock in old prices for a set period of time before new prices become effective. Gestures like these show your customers that you’re transparent and that you value the business relationship enough to point out something that might otherwise disrupt it.
5. Prepare Your Employees for Pricing Questions
You may be well aware of the justification behind your price increases, but are your employees also in the loop about your pricing procedures? If you have staff, provide them with talking points about why you’re raising prices and how it affects them and consumers in the long run.
Prepping your employees is particularly important if customers view your product or service as a necessity. Customers often respond with confusion or anger when companies fail to communicate the reasoning behind price increases for products they feel meet basic needs.
As such, make sure staff members are ready to field customers’ questions and, if necessary, can guide customers towards lower-priced alternatives. In addition, utilize print and digital communications, including posters, store displays and your website, to advertise information on smaller items or services delivered during low-peak (i.e. less expensive) periods.
6. Use Promotional Tools to Reassure Customers
Earlier, we discussed using pricing structures such as cross-selling and upselling to add value while encouraging bigger purchases. But retaining existing customers and winning over new ones after a price hike also involves savvy promotion and advertising that reinforces the value of your product offerings.
Consider using return policies with money-back guarantees for higher-priced merchandise and services. Attaching one-time rebates and coupons can also get customers more comfortable with the new price point. In addition, give customers and clients the option to enroll in payment plans, which will allow them to break the total cost into smaller payments over a period of time.
No one likes to sell themselves short when it comes to pricing their products and services. The act of aising prices is very sensitive to the customer response. However, many small business owners, independent contractors and freelancers do just that by charging fees below market rate out of fear of alienating or angering customers. Knowing the added value that your business brings to customers, as well as what customers view as fair and reasonable for your market will improve your ability to increase prices as needed while maintaining customer loyalty.