Increasing Prices and Crossing the Line of Rationality…
Nobody likes a price increase and nobody likes a nasty surprise. So why is it that most companies insist on delivering their price increases as a nasty surprise.
The trouble with increasing prices to regular existing customers is that they have the strongest of benchmarks upon which to base their judgement of your new price…. namely the price you used to charge them. The issue then becomes, not whether the product constitutes value at the new price (in reality a few percent difference in the price is unlikely to fundamentally make the value unappealing), rather that you have had the temerity to move the price.
So logically what you want the customer to do is make a rational evaluation of your product at the new price and say to him or herself ‘It is not worth risking moving my business for a couple of percent’. The closer you can get to ambivalence the better. We call this Staying the right side of the line of rationality.
What many companies manage to do is drive their customers across to the wrong side of the line of rationality by making a price increase a nasty surprise and bouncing it on the customer at the last minute. Remember those emails or letters that start ‘Dear Customer…. due to cost pressures beyond our control…. with effect from the first of next month…’ You can almost imagine the supplier sending them out then taking the phone off the hook and hiding under the desk.
On the wrong side of the line of rationality lies anger, a desire for revenge, retribution and rash decision making. We have seen customers cut their noses off to spite their faces by shifting their business hastily to an unsuitable alternative supplier.
The trick to implementing an increase is to do it slowly and gently. Drop hints well in advance that the price in on the move without saying when and by how much. Use the passive voice to depersonalise the action “Price changes are likely to happen in the new year”. Use all communication channels open to you to lodge the notion of an increase in the customer’s head without giving them a chance to argue the detail.
If you place a sufficient time between announcement of the intention and final confirmation, then even those customers who were furious at the outset will have had time to let the steam out of their ears.
People worry about competitors hearing about the increase and taking advantage. In most markets your increase will go unnoticed. In any case any sensible competitor would take the hint and raise their prices too. (PS Don’t call them and suggest this. Collusion is illegal)