Businesses everywhere must deal with inflation from time to time, and that means you may need to reassess the prices of your offerings. If you feel it's time for an increase, keep the following seven tips in mind.
1. Be Strategic with Price Increases
Some businesses wait too long before implementing a large, sudden price rise, which can catch customers off guard. This may cause them to look elsewhere to find what they need. Instead, be more strategic if you need to adjust prices. Try making smaller, planned increases that are easier for customers to accept. You may benefit from modest annual adjustments rather than one big, dramatic change. This approach can also be helpful for stabilizing cash flow and reducing the emotional difficulty that can accompany pricing decisions.
Regularly review your prices and treat increases as part of normal business operations rather than emergency measures.
2. Communicate with Your Customers
If you intend to roll out a significant price increase, it's a good idea to let customers know ahead of time. Communicate why you're doing it to give them a chance to be more understanding. Many people appreciate feeling informed and respected. Explain the circumstances in clear, simple language. Avoid blaming customers or sounding defensive, and instead elaborate on rising costs, continued quality, and your commitment to providing strong products or services. Being transparent is helpful for maintaining customer trust, especially with long-term customers.
3. Consider Unbundling
If you offer bundled products or services, it might be worthwhile to offer unbundled versions. This can help customers get what they want while minimizing sticker shock.
"Customers who previously welcomed the convenience of buying products, options, and services rolled into one may now ask for a detailed price breakdown," says John A. Quelch at Harvard Business School.* “Make it easy for your more price-sensitive customers to better cherry-pick the options and services that they truly need by giving them an unbundled menu of options."
4. Try Tiered Pricing for Flexibility
Offer tiered pricing for further flexibility. This allows customers to choose different levels of service or features at different price points, which can help manage price sensitivity while providing choices. For example, you can offer basic, standard, and premium options so customers can control their spending while still buying from you. This can be a helpful strategy for shifting the focus
from a price increase to expanded options.
5. Create Less Risk
If you need to increase prices, consider ways to make it easier and less risky for customers to try your products or services. Monetizely suggests addressing the perceived risk of customers, noting that price resistance often reflects risk aversion more than actual budget constraints. To address this, it says, you can create lower-risk entry points, such as offering ways for customers to experience value before fully committing. This could come in the form of free trials with clear ROI metrics (to show measurable value within the trial period), pilot programs, or satisfaction guarantees that offer conditional refunds if specific outcomes aren't achieved.**
6. Make Sure You Understand Your Pricing Structure
Before you make any changes, make sure you truly understand your own pricing structure. Review your costs and confirm that you have the most up-to-date information. Sometimes businesses rely on outdated assumptions or rough estimates rather than current data. Costs often rise quietly. Things like supplier fees, insurance premiums, software subscriptions, energy costs, and similar expenses can increase incrementally without much notice. These can add up and should be considered as you make your own pricing adjustments.
7. Monitor Customer Response
Once you roll out price changes, pay attention to feedback from customers. Watch for changes in order volume, churn rates, customer comments, and other indicators. You may experience an acceptable dip at first if margins improve overall, but major losses may require adjusting prices again or adding more value to your offerings. It may also mean you need to improve your communication. Either way, customer response after a price increase can tell you a lot about how your adjustment is performing.
Price management can be challenging, especially when inflation is high, but remember it is not a one-time activity. Adjustments can be made over time based on customer response and your overall financial picture.
* https://www.library.hbs.edu/working-knowledge/seven-tips-for-managing-price-increases
** https://www.getmonetizely.com/articles/overcoming-sticker-shock-strategies-for-high-priced-products
