Everyone Is Raising Prices. Should I? Can I?

I've been noticing lately that clients are asking more about pricing, and some clients are being forced (or choosing) to raise prices to help them hire or retain staff, buy more inventory or supplies, or invest in other aspects of their business. No doubt the current post-pandemic environment of rising inflation, unreliable supply chains, low unemployment, rising wages, and other economic challenges are at the heart of this. It's a tricky conversation to navigate, but it can be done effectively without burning bridges with your existing customers or scaring off new ones. Here are a few things to think about as you consider pricing increases:

Do Your Research—Positioning

If you increase your prices, are you still positioned in the same category? In other words, do your customers still view you in the same category if your prices go up a bit? In some industries there's a fine line between good-better-best options. If you increase prices too much and it puts you in a different category, you risk alienating loyal customers and will need to re-tool your strategy to appeal to a different category.

Do Your Research—Competition

How much you increase prices might depend on your competitive space. If you are currently winning business because you are priced significantly lower than your competitors, raising prices might put you out of customers' budgets or remove a competitive position you previously held. If their best alternatives are still going to be a lot higher than you in price, even after you increase, then I'd say you have room to do that.

Storytelling with Pricing

Just because everyone else is doing it doesn't mean you should. But it means you have an opportunity to while consumers are more open to the idea. Maybe this is a good time to talk about the value of your product or service, what changing the price will allow you to do or provide for customers, how it impacts your team, or if you're not changing the price, how that will impact the customer experience. I think the biggest win here is to connect with your customers. Be honest with them about why (or why not) prices are changing and explain the rationale or value that it brings.

If you're telling a story along with the price change, it's more likely that customers will stay because they believe what you believe. If your prices are going up because you need to stay competitive with hiring the best talent to make better products for the customer, then your main customer base should be made up of people who believe in that, too. And if the current ones don't, hopefully you will attract new ones who do.

NOTE: If the only value it's bringing is higher profits for you, reconsider. Just because you CAN raise prices doesn't mean you SHOULD. Reinvest it into something that offers some value for your customers, or for the long-term health of the business.

No Surprises

Most consumers know that supply chains are messy, that lower supply means higher demand and therefore, higher prices. (Well…some consumers know this, but not all. Sometimes I overestimate this based on my own experience. There are still many people who don’t understand supply and demand. What they know is that it’s hitting their pocketbook in a negative way.)

It's also apparent that the economic crises happening across the globe are impacting things in the US. People know costs are going up. I've gotten several notices recently that the cost of this subscription and that service are all going up. My grocery bill is higher, my gas costs me more than it used to. Service at restaurants takes longer and the bathrooms don't get cleaned as often at my favorite KwikTrip. I don't love any of this, but I'm not surprised by it, all things considered. And the surprise is what consumers really hate.

If you're upping the price of your products or services, give some notice and/or give them some options. If your customers know it's coming next month, within a few months, next year, etc., they can prepare. If it changes their overall budget, expect to lose a few customers. If it's a small change, they'll appreciate having a heads up.

For those customers that don't stay with you through a price change, it will be obvious how your brand is perceived with them. Brands that have a stronger relationship with their customers can withstand price increases better than companies with weak customer relationships. This is another reason why branding is so important, even though it can be harder to measure.

A Real-Life Example in Changing Pricing

We recently helped a client through a price increase. The rise in talent costs was having a significant impact on their manufacturing capabilities, so raising prices was primarily borne out of the need to stay competitive with talent. We timed the price increase with a new product rollout, and implemented it immediately with new customers. For existing customers, we notified them of the pricing change but offered significant discounts in exchange for longer contract renewals.

We explained why the costs were going up and asked for their partnership in continuing to grow the product/company. We also offered customers options for renewing contracts for a shorter timeframe, and throwing in some additional services for a limited time to give them value and time to prepare.

The industry has a long buying cycle, numerous stakeholders, and a lengthly approval process, so giving them advance notice was critical. For those new customers who are now getting the new pricing, they still get great value at the price point we're offering, relative to competitors, so it's helping generate revenue right away.

Test Your Message

Pricing conversations can be difficult, and implementing new pricing strategies can be tedious and complex. Consider testing your new pricing options or story with a few loyal clients to get their feedback. In the example above, some existing customers balked at the pricing after the first offer was presented, so we listened and tweaked it. We found a negotiated middle ground and then carried that to their other customers. The client hasn’t had any backlash among their existing customers, and their revenue has increased enough to be able to offer the higher wages and bonuses to staff to keep them with the company.