3 Smarter Ways to Raise Prices
Raising your price can mean losing customers. Case in point: When Netflix suddenly raised its price about a year ago, irate customers left in droves.
However, it is possible to raise prices in such a way that your existing customers, rather than leaving the fold, stick around--and may in fact become even more loyal. Here are the ground rules to use.
1. Have a Credible Reason
Customers realize that there are plenty of good reasons why a price can and should go up. For example, if your suppliers are charging more, they know you'll have to charge more. Similarly, if rising support costs are making your company unprofitable (even though your product is high quality), customers know that you'll eventually need to charge more for support.
Even something like, "I found out that I'm charging less than the competition" can be a valid reason, if delivered honestly. The main point is to have a reason other than "because we want more money"--which is basically how Netflix positioned it.
2. Provide Plenty of Warning
Customers hate surprises. The minute you know that you're going to have to raise your price, start laying the groundwork. In your regular communications with your customers, explain what's going on with your business and start building your case for a price increase.
This is where a corporate blog or a customer newsletter comes in handy. Keeping customers informed and involved makes it less likely that they will bolt when they find out that they will have to pay more.
Netflix had ample time and opportunity to communicate with its existing customers; there was no reason to spring the news out of a clear blue sky.
3. Give Existing Customers a Discount
Let's suppose you need to raise your price 15%. Rather than make the price rise across the board, raise the price 20% for new customers--but only 10% for current customers. Even a temporary discount off the new higher price tells your current customers that you value their support and that you're committed to giving them the best deal possible.
If you've made a reasonable case for the rise in price and laid the groundwork, your existing customers will be grateful for the discount rather than irritated at the new price.
Like this post? If so, sign up for the free Sales Source newsletter.
Geoffrey James, a contributing editor for Inc.com, is an author, speaker, and award-winning blogger. Originally a system architect, brand manager, and industry analyst inside two Fortune 100 companies, he's interviewed more than a thousand successful executives, managers, entrepreneurs, and gurus to discover how business really works. His most recent book is Business Without the Bullsh*t: 49 Secrets and Shortcuts You Need to Know. If you enjoyed this post, sign up for the free weekly Sales Source newsletter.