A small business sees its cost of goods increasing. It experiences higher operating costs. Net profit is shrinking. So, how can a business start raising prices successfully, pass these increases on to its customers, and still retain loyal customers? This can be a tough decision, especially when the economy is not booming. A business wants to maintain a certain profit margin without antagonizing customers and run the risk of losing them to competitors. Some businesses might even opt to sacrifice profits just to make sure customers do not “cut and run.”
So, what’s the answer assuming the business’ strategy is not to be the low-cost provider in the market? Here are six practical ideas that work:
1. Develop a pricing strategy – The business must decide if it wants to raise prices incrementally – a little at a time – or all at once immediately getting to the optimum price desired. Either approach can work, but understanding the business’ customer base is important. Knowing which approach is going to be most acceptable to customers can lead to its implementation success.
2. Be transparent – Transparency is a key ingredient to the success of raising prices and retaining customers. If customers know in advance that prices are going to be raised and the reason for the increase, they are more likely to accept the price increase and remain loyal customers. The important thing is to avoid “sticker shock price increases.” You don’t like it, and neither do customers.
3. Consider a variable price structure – Rather than raising prices on primary products or services sold, consider “add-on” pricing. This might be selling additional quantities or services, extended warranties, personalized customer service, or even discounts for preferred customers as an incentive to increase purchases. No harm done in trying creative pricing to increase profits!
4. Stress value – A company must differentiate its products from the competition and stress value. When a company’s products are better than the competition, it can justify a higher price. It is critically important for customers to understand that quality, service, uniqueness, etc., are worth a higher cost.
5. Ready explanation – Some customers are certain to question a price increase. No sense “beating around the bush” or getting into the fine details of the company’s financial structure. It is important, however, to have a quick, concise answer ready for those customers who question a pricing change. If customers understand a price increase, they are generally more accepting.
6. Employee buy-in – Remember, employees are the faces of any company and have direct contact with customers. Employees must understand the reasoning behind price increases so they can give adequate explanations to customers. Before employees can be positive with customers and advocates for the company, they must feel comfortable with answers they are expected to give.
Prices can be raised on products and services without losing customers. The key is to handle the increases in the right manner with both customers and employees. When employees can give logical explanations that customers can understand, and customers receive advance notice, then customer retention can be achieved.