Increasing Self-Awareness
What can I do to become more self-aware? My notes from McLean, Buddhism, and Emotional IQ.
Links to Feelings
Friday, April 11, 2014
Wednesday, April 9, 2014
How to Raise Prices
Price Increase
I was recently faced with a situation in which I had to dramatically raise prices. I have had this problem and seen it many times, especially when starting a business, because it’s hard to know the exact value of your offering. Furthermore, there are other complications, like sales may not be what you dreamed up, and expenses can get out of control.
The Problem: Existing Customers
Assuming that the price is fair, the real problem with a price increase is not the price itself, but your existing customers or potential customers. Customers who don’t know about the old price won’t have the same reaction. It’s the existing customers who have expectations of value.
Years ago we decided to nearly double the price of our Internet banking solution. Our top sales person said it was impossible to sell at the new price. Ultimately this lead to our relationship with him ending. We replaced him with someone who didn’t know the old price. He ended up selling quite successfully without any problems.
Every once in a while when a customer asked “Wasn’t the price different before?” The sales person would say, “I’m not sure…I don’t really know. In any case this the current price,” and then he would seamlessly talk about other things simply because he didn’t see price as an issue. The customers were slightly confused yet quickly forgot and moved on.
Anchoring
Raising prices gets people upset is because of a psychological concept called anchoring. When people evaluate a number for something, they often remember the first number as the “fair” or “reasonable” point. If I say my product costs $200, but then raise my price to $400 people will see it as an outrage. My product could be worth $600, but once people hear $200, the increase to the higher but still reasonable $400 will make people unhappy even if it’s an amazing deal.
Discounts
Discounts are another great way to raise prices. The price can be raised but not at the same time. For example, if I am a web developer and my rate is $50/hr and I want to raise it to $100/hr, I could simply just raise it and then offer a discount to customers of $50 off per hour. For new customers or new projects (who haven’t been anchored), I can price them at $100/hr. Existing customers tend to see you as more valuable in light of the new price and will often use less of your time and promote you more.
Change your Offering
In marketing 101 we learn that we are offering is a product mix, not simply a product. This includes the 4 Ps: product, price, placement, and promotion. If the price is changing the product mix is changing and feel free to change other elements. My favorite approach to deal with prices is just to change your offering. If Apple needs to raise prices, they just launch a new product. People gladly accept it’s a different product and at a different price. People know in advance that the old offering is going to be discontinued. They know a new product is on it’s way. Don’t focus on the price, and instead focus on the advantage of the new offering, such as the retina display.
Be Confident
A big factor in how customers accept a price difference is my own confidence. It’s easy to feel guilty when your price goes up. However, I try to remember that I am raising prices for a very good reasons. I can accept that and communicate that. Ultimately you are trying to do a better job. That’s not a bad thing. We all know prices go up and times, and so do your customers. I am often surprised at how little customers know about my prices. When people do notice, I can acknowledge the price change if it comes up, accept responsibility and move forward.
Overall, what many customers want is empathy. They want to be acknowledged. Recognize that the price has changed, try to connect with your customers so that they feel heard and reflect their feelings.
As a customer I prefer honest bad news than not knowing a bad situation is continuing.
Blame
Price increases frequently have to do with factors beyond your control. Customers will take this better if something or someone else can be blamed. “It’s not me, it’s them!”
Airlines for example can blame rising fuel prices. Or grocers can blame seasonal variations in addition to fuel costs.
I like emphasize how my own plans might be changed in relation to the plan and that I am feeling the pain too. If you are an airline you could say “In order to deal with increase fuel prices, our executives have taken a pay cut” or “We have considered ways to reduce our costs in light of rising fuel prices, but we have been able to do so if we want to maintain our quality of service that we believe is important to you.”
Add Something
You can also choose to give customers something extra. Add something. Virgin airlines in response to rising fuel prices said“Prices are increasing and so we’re giving you an extra pillow.” This goes a long way and also ended up giving Virgin tons of free publicity as the media picked up on it.
Subscribe to:
Posts (Atom)