The current business environment is incredibly competitive but as we emerge from the pandemic, consumer demand is increasing, and many sectors have seen labour and material costs rise. As demand increases and levels of supply fall, businesses have an opportunity to increase their prices.
Study the competition
Have your key competitors increased their prices recently? If so, your customers will be more amenable to the change. However, if you are the only firm pushing your prices up, you will need to offer something unique in order to justify it.
Be open about your price increase
Tell your customers what you are doing. Avoid language like “updated price” or “adjustments to our pricing model.” Just be honest and authentic – after all, customers want to buy products and services from businesses that are open and honest.
Explain the reasons for the increase
You don’t have to go into detail about profit margins or unit costs. Simply share the basic information. For example, “We are now going to deliver your product / service directly to your front door, and as a result, we will be raising our prices from next quarter.”
Don’t apologise for increasing your prices - this will just invite your customers to negotiate. Focus on the benefits that the customer gets from buying your product or service. Maybe you offer something faster, better or with unique features?
You win some, you lose some
Some price-sensitive customers may choose to go to another supplier, but any new customers will be more profitable as those new customers may be willing and able to pay a higher price for a better quality product or service.
If you receive feedback that some customers are now looking around for a cheaper alternative, maybe you could introduce a new lower tier of product or service, which has less features but at a more competitive price. For example, your top tier customers might get a dedicated account manager, 24/7 service and support, etc.
The lower priced product may cut out the account manager and support may be available only 5 days per week, but the price could be 25% lower. That way you end up making more money from your premium customers, but you don’t lose your more budget conscious clients to your competitors.
The content in this blog is correct as at 2 November 2021.