For many, the new year brings about new changes. Some of us make new year’s resolutions, while others choose to go with the flow or make good on last year’s resolutions. A common theme of many resolutions has to do with finances, and with the changing of costs for food and supplies among other items, we know that we as individuals aren’t the only ones who feel the need to reevaluate. Hence the tips below.
Many business owners are facing the challenge of deciding when or if to increase pricing to help meet their bottom line. While no plan is one size fits all, SCORE has a helpful article titled, “How to Raise Prices Without Losing Customers” that we think will help you come to the right decision for your business and give you some tips on how to do it. Read it below.
Note: The article below originally appeared on score.org.
Small businesses are in a quandary these days. Inflation, the pandemic, and supply chain disruptions have impacted their expenses, making it more expensive just to conduct business. And those inflationary pressures have also affected their customers. Consumers are looking for bargains and spending money on what they need, not necessarily what they want.
Many small businesses in this situation think raising their prices is the solution but are hesitant for fear of alienating customers. But it is possible to keep your customer and raise your prices.
Here are 12 ways to do it.
Increased prices are a universal concern. Consumers are aware that companies are charging more and delivering less (we’ve all noticed the shrinking size of cereal boxes). So it’s important to be transparent and not hide the fact that your prices are rising.
If consumers think you’re not forthcoming, customer resentment could emerge publicly via social media for millions to see.
Harvard Business Review
says using clear language when communicating price increases to customers is essential. In an article, Utpal M. Dholakia, Professor of Marketing at Rice University’s Jesse H. Jones Graduate School of Business writes, “Call the action a price increase, not a price adjustment, a price change, or another euphemism. While this may seem like a small thing, euphemistic messaging can cause serious harm, fraying the relationship with loyal customers.”
Many consumers are keenly aware of overall economic conditions, so when you tell your customers you’re raising prices, it just confirms their expectations, and most accept it.
While it’s harder for retailers and restaurant owners to hide higher prices, especially from regular customers, some service businesses try to sneak price increases into client bills hoping they won’t notice. Don’t do this.
If you own a service business or a B2B, let your customers know in advance that you plan to raise prices. You can even use the upcoming price rise as a customer retention technique. Explain to your customers that you will be increasing your prices, but as a reward for being a loyal customer, you will maintain their current pricing if they renew their contract now.
Your customers don’t need to know the nitty-gritty details. Don’t tell them about your profit margins or how you’re being squeezed by higher prices yourself. Just tell them the facts, such as when the price increase takes effect and what the new price structure will be.
This is also a great time to offer something “extra.” For instance, if you’re going to add 24/7 customer support (even if it’s a new chatbot) or free gift wrapping, let them know.
Try not to come across as tentative or nervous since that may signal to your customers that you’re willing to negotiate. That’s a scenario you want to avoid. Don’t offer deals to some customers that you don’t provide to others. Customers often talk to one another, and if someone finds out another customer got a “break” when they didn’t, you will likely lose their business.
Research the Marketplace
What are your competitors doing? Have they raised prices in the past few years? By how much? Have they given their customers more value? Customers are more willing to accept price increases if everyone in your industry is doing the same thing.
Remember, it is very easy for consumers to comparison shop these days, so your customers will know if you’re charging more than other businesses in your industry.
To get through a price increase relatively unscathed, you need to make sure your customers are satisfied with your products and services. Happy customers are more likely to be loyal and accept your higher prices.
Retain Price-Sensitive Customers with Email
Price-focused customers may leave for other lower-priced options. That doesn’t mean you should abandon them. Depending on the type of business you own, keep them on your mailing list (unless they request to be removed). Their economic circumstances may change, or they may find the quality of your products or your exemplary service is worth paying more for.
Consider sending a “we miss you” email with a promotional discount to entice them to return to doing business with you.
Here are some additional ideas for how you can raise prices and retain your customers.
Raise Prices for New Customers Only
Many B2B businesses can keep current clients at their current price level but charge higher prices for new customers. Be sure to let your clients know they’re getting special treatment: “Effective immediately, we will be raising our prices. However, because we value you as a loyal long-time customer, your price will remain the same for the next 12 months.”
You can also offer a discount to clients who sign (or renew) a multi-year contract.
Create product or service bundles by adding features that don’t hurt your profit margins but positively impact your customers. Depending on your business, you can extend your service hours or offer bulk discounts. Consider creating a loyalty program where customers are rewarded when they reach pre-set spending milestones.
If you’re a retailer, consider offering complimentary gift wrapping if customers spend a certain amount of money.
Raise Prices on Some Products or Services and Not Others
Try raising prices only on your most popular products and services. Since they account for most of your sales, this can significantly impact your revenues.
Develop Different Levels of Service
You could create bronze, silver, and gold packages where the more customers spend, the more services they get. This works particularly well for home-service businesses like lawn care or pool maintenance. If weekly clients can’t afford the new rates, perhaps you could provide bi-weekly service instead.
Consider Adding Fees and Surcharges
Some businesses add fees or surcharges as a solution for a temporary situation, such as a surge in gas prices. This can be risky, though, since customers expect these additional fees to disappear when that situation changes. Do not promise customers that you’re temporarily raising prices and then keep them elevated. Customers will think you lied to them and will never trust you again.
Presentation is Key
Professor Dholakia says linking your price increases to a customer-centric value makes it easier for customers to accept them. When you tell them you’re raising prices, focus on any added benefits, such as expanded product offerings or additional services.
Of course, some customers will balk. Brainstorm with your team about possible customer objections and how to best counter them. You want all your employees to be on the same page so that no customers get preferential treatment.
Keeping customers despite raising prices is not that complicated. It’s about being open and honest and continuing to offer excellent customer care. Satisfied customers will pay more because they’ve come to know, like, and trust you. Maintaining that trust is the key to success.