May 6, 2019 Last updated May 3rd, 2019 2,086 Reads share

How Do You Raise Prices Without Losing Customers?

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If you study the history of staple products like eggs, bread, milk, gasoline, and cars, they go up over time. The same is true for non-essential products and services. Some of this is due to inflation, while other times it’s simply a capitalistic response to increasing demand.

If your business finds itself in a situation where it needs to raise prices, it’s important that you do so with purpose and discretion. Otherwise, backlash and attrition may follow.

Why Do You Need to Hike Up Prices?

The first step is to consider whether you actually need to conduct a price increase in the first place. And if you think you do, what’s the reason behind the surge? Common causal factors include:

  • Inflation. Over time, inflation drives the value of money down. To keep up, you have to raise prices. While inflation has been relatively stagnant over the past few years, experts anticipate it will kick up within the short-term.
  • Competition. Heavy competition requires increased marketing and advertising expenses. This may necessitate a price increase. You may also discover a huge increase in demand for your products. Raising prices is a smart way to meet this demand.
  • Added value. Have you suddenly added a bunch of value to your product? If so, a price hike is justifiable.
  • Cash flow needs. Have you suddenly invested in a new building, added additional employees, taken on new debt, or had a supplier raise prices on your business? A price hike could ease cash flow concerns.

If you want to elevate prices simply to increase profit margins, this may not be a good enough reason. Consider that many customers are price sensitive and will unsubscribe and/or stop purchasing from your business once prices cross a certain threshold. Some won’t like the price hike regardless of how minimal it is and will quickly bolt to a competitor. So even with greater profit-per-customer, attrition could leave you with smaller revenues.

Price hikes shouldn’t be haphazard or emotional. If you’re committed to increasing prices, you must find a way to keep your customers in the fold.

4 Ways to Ease the Pain

Google has been in the news recently for its decision to increase prices on YouTube TV – the popular media streaming service – from $39.99 to $49.99 per month for its subscribers. The change went into effect immediately. The service, which launched just a couple of years ago at $35, has now gone up 42 percent over the original price point. And while some customers are frustrated, there hasn’t been a ton of backlash yet. This is, at least in part, due to the fact that Google has managed each price increase with an appropriate level of intentionality.

If you decide that a price increase is the right thing for your business, proceed with a similar level of purpose. Here are some suggestions for how you can ease the pain:

1. Communicate Value (Early and Often)

It’s good business to communicate value to your customers and remind them of just how important your products and services are (and why they’re smart to choose your company over the competition). This is essential when raising prices, but should also be a normal practice all the time.

“If you are only communicating about the value you bring to members at dues renewal time, you are not doing things right,” MembershipWorks tells its clients. “Members need to be reminded all of the time, ‘What’s in this for me?’ Perceived value is the number one metric that determines renewal rates.”

2. Keep Existing Members Grandfathered In

You can always reward your existing customers by grandfathering them in. For subscription-based businesses, this looks like locking their price in (indefinitely or for a period of time). In a business where you sell physical products, it might look like sending out coupons to your existing customers to continue purchasing the product at the original price for a period of six months.

3. Stagger the Price Increase

When a price hike is considered significant, you may find it better to stagger the increase over time. For example, instead of raising the price from $100 per month to $150 per month, you could increase the price by $5 per month over the course of 10 months. This removes some of the sting and helps customers become more comfortable with the new pricing.

4. Add Features or Value

Customers have a hard time paying more for a product when they’re getting the same value in return. If you’re increasing the price, make sure you’re also increasing the value (or at least the perceived value). Google, for example, added a handful of new channels to its lineup to make customers feel like they’re getting additional value for their money.

Consider Your Other Options

There are other ways to increase profit margins and/or bolster the bottom line. If you’re averse to increasing prices, think through other options. You can always:

  • Cut costs. Try renegotiating supplier costs, switching suppliers, changing manufacturing processes, or eliminating wasted spending. Cutting costs can provide the same effect as increasing prices.
  • Increase quantities. If you sell physical products, increasing the quantity of your supplier orders (or making more units at once) can lower the cost per unit. Find more customers and your profitability will increase.
  • Add sponsors/partners. Can you form a partnership with another company or sell sponsorships to lower costs or create an additional stream of revenue?
  • Be a low-cost leader. There’s nothing wrong with being a low-cost leader in your industry. When everyone else is raising prices, you can keep your prices steady and target the price-sensitive slice of the pie.

Think of yourself as an engineer with dozens of levers and buttons in front of you. You have the option of pulling, pushing, and pressing a proprietary combination of elements to achieve the results you’re seeking. Whether it’s raising prices or manipulating something behind the scenes, it’s possible to improve your financial situation without frustrating customers.


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Anna Johansson

Anna Johansson

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