There are lots of reasons to review and increase your prices at regular intervals - it's a normal part of business. Effective and fair pricing helps grow customer loyalty and relationships. Fact! Steep pricing hacks are going to turn customers away so you've got to be more sassy and subtle in the way you raise prices. Small pricing hacks can be beautiful sometimes! The important things are to know your customers, know your industry, and experiment until you find a fair pricing level that works best for you and your business, without alienating customers.
Reasons why you may be looking to increase prices
Maybe your costs have gone up?
Are you keeping up with the extra costs of your business? Your raw materials or travel costs might have increased dramatically and need to be carried over to the client. The client should understand the need to price accordingly.
You're looking to reposition yourself
If you are rebranding your business or want to reposition yourself then you need to think about your prices too. Think about what price your clients expect to pay. Are you undervaluing yourself or your product? If you charge too little your clients may not buy more, they'll just think why is it so cheap - what's wrong with it?
Your profile & credibility have increased
If your business is growing, it's a sure sign that your reputation and reliability have grown. Maybe you've done more training and have become quicker or more effective in your work. Your credibility might have increased because you have taken part in exhibitions or won awards. These are all fair reasons why you can look to increase your prices.
You need to increase profitability
Achieving a higher price, whilst keeping the same volume sold or witnessing only a small dip in sales relative to the price increase, will bring a direct uplift to your bottom line. Finding this sweet spot is a key driver to increasing prices.
The Pricing Hacks
You need to make changes to improve your bottom line. Here's how to do it without alienating your customers.
The decision to raise prices may be a tough one, with many ramifications for your business. But the decision whether or not to change prices is not as important as the decision about how to accomplish the change. To put it another way, two companies who change prices on the same products by the same amount may get widely different results depending on how they implement the new policy.
Raising prices effectively involves careful attention to timing. It requires knowing how to affect your customers' perception of the value inherent in what you are selling. It forces you to study and accurately predict reactions from your competitors.
1. Tell your clients in advance
Give them the truth and reasonable notice when you are going to increase a price so they can make choices.
Increasing your prices might have less overall effect than you fear it might. If you increase your prices by say 5% (which would possibly make a huge difference to your income) would you loose so many clients that your profits will go down? It’s unlikely.
2. Plan ahead
If you know that your costs will be increasing in the near future then it makes sense to plan ahead and start to increase your prices gradually now, instead of surprising your clients with a sudden large price increase.
If you increase the prices of your product or your hourly rate then do this by a percentage, and introduce it in the first instance to new clients only. If you feel it's necessary, give a reason, but you don’t have to – be confident in yourself and your product or service.
The reality is that most price hikes are done in stages on the theory that customers will be accustomed to higher prices over a period of time and be willing to tolerate them as they become more loyal. A series of smaller hikes may not even be noticed by customers who would be seriously put off by a single large one.
4. Selective price rises
If you have more than one product, consider raising prices on some items while leaving others the same, or even lowering them. Some customers are sensitive to the slightest price hike for a particular item while mostly ignoring other increases. Car dealers use this fact to their advantage by cutting prices on cars as low as possible and attempting to make much of their profit on accessories like fancy paint jobs, about which customers are less price-sensitive.
5. Picking the right time
If you decide to raise prices, you must pick the right time. Choose a time when you'll encounter the least resistance. Your business's seasonality, growth stage and sales cycle may affect your choice.
Many retailers, for example, raise prices seasonally, usually in the autumn when Christmas is near and rushed shoppers pay less heed to prices. A brand new shop early in its growth stage might delay a price hike, however, in a bid to gain market share. Meanwhile, a computer store catering to businesses is likely to ignore Christmas and time price changes to coincide with new model introductions, which are more important to its sales cycle.
It may be tempting to put off raising prices until after a busy season ends. After all, higher volume may make up for lower per-unit revenues. However, the time to raise prices is when your product or service is most in demand.
6. Changing value and price
Prices don't exist in a vacuum. A price is supported by the value the customer perceives in the product or service to which the price is attached. Thinking about price and value in this way makes it clear that this is at least a two-dimensional problem. That is, you can change the pricing and leave the value alone, or you can change the value and leave the pricing alone. You can also change both value and pricing or leave them both alone. Any one of these changes can be tailored to have the same impact on your bottom line, at least on an individual unit basis, but they may have vastly different effects on customers.
An example of changing the price without changing the value is when a supermarket holds a sale on a popular consumer item. A case of Coca-Cola is a well-recognized commodity; shoppers have a firm idea of what a dozen cans of Coke are worth. If a retailer charges less than that amount, shoppers will be attracted. Charge more and shoppers will be put off.
Many businesses change value without changing price. For instance, research shows that Mars Bars have shrunk 28% since the 1990s and Yorkies 20% since their 1970s launch. This has allowed chocolate makers to maintain the perception of holding prices steady or even reducing them, while they are in reality increasing the per-ounce charge for their cholate bars. Sassy shoppers who notice such manouverings may resent them. However, for the most part we're still tempted to continue to purchase.
You can complicate the picture by changing both value and price simultaneously. For instance, a supermarket could raise prices on Cokes but include a free insulated can holder with every purchase of two or more cases. Changing value and price simultaneously may confuse customers, so it's a good idea to figure out which element is most important - the value of the can holder or the extra prices on Cokes. Typically this works best when the items are related.
Many businesses get the best long-term results from increasing both price and value. Others find that they can cut their own costs while increasing value and thereby offer an almost irresistible proposition to customers. This is a powerful recipe for growth - but the key lesson about value and price is that these elements can be adjusted to move demand and increase sales without changing what it actually costs you to make a product. Pay careful attention to what happens when you move pricing and value points - it will show you the way to pain-free, profitable growth.
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- How Often Should You be Updating Your Prices?
- The best time to review your pricing.
- Why you should love your price waterfall.
- How to charge a premium price?
- Pricing with Confidence: 10 ways to stop leaving money on the table – Reed K. Holden and Mark Burton 2014.
- http://www.entrepreneur.com/article/66010 How to Raise and Lower Your Prices.
- https://econsultancy.com/blog/64115-pricing-hacks-for-ecommerce-stores-that-bring-in-the-dollars published by Shane Jones 13 January 2014.
- Harvard Business Review on Pricing, 2008.