We are going through tough economic times. You may believe that the easiest strategy to get customers flocking back would be to lower your prices. Alternatively, you could consider raising your prices to bring in some much-needed revenue. If you take the latter path there’s bound to be trepidation that this could be the final nail in your retail coffin, that your customers will abandon you for those other retailers offering cheaper products.
However, prices often need to be increased in order for a business to remain viable: indeed, if your costs have increased this might be your only option.
Before we explore when you can raise prices without losing customers, consider first these very relevant pricing tips raised by Leigh Cauldwell, behavioural economist and pricing expert, in his book “The Psychology of Price”.
- Pricing should be based on the value to the customer, not the cost to you.
- Pricing should be tangible, so your customers can see what they get for what they pay.
- Prices should be comparable – on terms that you control.
- If you want to change your prices, you must reframe the product or service.
- Price differentiation is the key enabler of profit.
- Pricing communication shapes the customer’s perception of value.
- You must be prepared to lose some sales in order to increase profits.
Raising prices does carry risks but there are ways to do so without losing your customers; with the above in mind, here's some tips:
Add Greater Value
"Your product should always be improving, but it's simply counterintuitive for somebody to pay more for the same thing they got for less before. Justify the price increase by adding features or providing some other type of added value." Andy Karuza, Brandbuddee
Customers are far more likely to accept higher prices if they feel they are getting something extra, or an improvement. Justify a price increase by adding features or providing some other type of value. For example, offering one year's free support on a new computer would be a value-added feature. The more reliable, efficient and better your product is, the more customers are generally willing to pay.
The goal is to deduce how much your customers are willing to pay so that you can maximise your revenue by charging what is acceptable to them. If your prices do not reflect value they won't buy.
Offer Strategic Discounts to Offset Price Increases
"Discounting is a strategic issue for any eCommerce business and needs to be approached with the right methodical mindset." Aran Reeks
When you raise prices there's always a risk you'll lose your most price-conscious customers. To help prevent this, raise your prices but offer occasional discounts and deals that bring prices down to original levels. Your most frugal customers will use these discounts, the less price-conscious probably won’t bother, so you should still get plenty of customers paying full price.
Appropriate discount pricing strategies also dispel the idea that your products don’t offer similar value as previously: introduce the idea of a limited price drop for a quick response or as something that will only be available for a short time.
The Food and Drink Federation has said: "Shrinkflation is not an underhand way of passing on costs."
"Shrinkflation" is a rise in the general price level of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold. You can do this for almost any retail product but it works best with food items. If you’re concerned that this strategy could backfire, consider reducing sizes dramatically and transparently and charging proportionately less.
Some recent examples of Shrinkflation are:
- Tetley tea bags being sold in boxes of 88 instead of 100
- Kit-Kat Chunky reduced in weight from 48g to 40g
- Birds Eye potato waffles reduced from 12 in a pack to 10
The British Retail Consortium (BRC) has stated "sizing and pricing of products is impacted by cost of raw materials, negotiations with manufacturers and changing portion sizes. Prices and sizes of all products are clearly labelled so customers can make informed decisions about their purchases.
Have you considered selling multiple products at a lower rate than customers would face if they purchased each item individually? This can help soften the pain of price increases. The customer’s focus is on the price of the bundle and not on the unit price so they may not actually notice the price increase: it’s the offer that attracts them.
Bundle pricing is a great strategy for businesses that are able to offer free gift products. Boots are currently offering a JLO candle with selected JLO fragrances and 3 for 2 on selected No. 7 products (the cheapest being free). However, businesses using this strategy do need to ensure that they can afford the losses on the lower-value product and must be able to generate a good profit on higher-value products.
Be Honest About Your Costs
Sometimes you just have to raise your prices. If your own expenses are going up, then point this out to your customers; if you are spending more money on your products, then clarify the benefits of any additional features. Before raising your prices, make sure you’ve considered not only your current costs but also any cost increases that are likely to happen in the next year or two.
When you raise prices, you’re bound to upset some customers. Accept that you may have to explain your reasons but, ultimately, people pay what they think a product is worth. Remember, it's not always about the actual price increase itself, more how you approach the implementation.
As long as you prove good value for money you shouldn’t worry too much. Believe that your pricing is a fair reflection of your product’s cost and value, then instil this “mantra” throughout your business.
How To Be Savvy And In Control When Raising Prices