Creativity, innovation, and marketing expertise are crucial to the success of your business – but so is a good pricing strategy. As I discussed yesterday, poor pricing strategies – including undercharging for your good or services – are a common cause of startup failure.
To maximize revenue and ensure their businesses stay viable, entrepreneurs need to know how to price their goods and services – and they also need to know when it’s time to adjust those prices.
This is easier said than done: If you find that you need to raise the prices of your products or services, you run the risk of alienating customers, leaving you with a net reduction in profit, rather than the gain you were hoping for.
That being said, it is possible to raise prices responsibly without driving customers away. Here are four such strategies for smart price hikes:
1. Outline Your Costs
Don’t just raise your prices without explanation. Unexpected and (seemingly) unjustified price increases can seriously annoy your customers.
Rather, when you find you have to raise your prices, tell your customers why that is. For example, if the cost of a material you need to make your products has gone up, let your customers know this is why your prices have to go up, too.
If a customer can see why it is necessary for you to raise your prices, they will be more understanding, possibly even sympathetic. They may also expect these price increases to be reflected throughout the industry soon enough, meaning they’ll be less likely to shop around for cheaper prices.
2. Offer Customers New Features and Functionalities in Return
Outlining the underlying factors driving your price increase may placate your customers, but it won’t excite them. If you want to actually charm your customers, you’ll need to use your new prices to fund new features and functionalities in your products/services.
The pain of a price increase might be neutralized if the customer receives in return something they’ve long desired, like extended operating hours, new mobile functionality, or a time-saving feature of some sort. What you offer in particular will depend on your product/service, but it’s a good idea to offer something.
3. Wow Your Customers Before You Raise the Prices
Raising prices on the back of poor service is the quickest way to alienate customers. Think about it: If you were in the customer’s shoes, would you keep patronizing a business that had the audacity to deliver not-so-great service and then jack up its prices to boot?
If you want to raise prices without annoying your customers, you have to wow them first. That way, you’ll generate enough goodwill and customer satisfaction to get your company through the growing pains that come along with raising your prices.
Customers will be much more accepting of an increase in prices if they believe these higher prices will help you maintain – or even exceed – your high standards.
4. Provide a Lower-Priced Option
Certain customers may simply be unable to afford your new prices. This will not only drive these customers away, but if the customers are frustrated enough by the change, it may cause them to spread the negative word about your company, thereby deterring new customers from coming to your door.
In order to prevent this from happening, you should create and offer these customers a lower-priced option with reduced features. That way, the customer can still afford your goods/services, and you’re still making a profit on the transaction.
Some customers will still leave, even with the lower-priced option on the table, but you’ll at least be able to keep some of your customers who would have otherwise left without a second thought.
As a closing point, I’d like to point out that losing customers as a result of raised prices is not always a bad thing. If your prices cause you to lose unprofitable, high-maintenance, and ultimately unsustainable customers, then that’s a good thing – especially if, in return, you gain some customers that are profitable and sustainable.