Clients have said to me in the past that they worry about raising prices and potentially loosing sales, but at the same time, feel that they can’t afford not to. Many businesses fail because they don’t sell their products and services at high enough prices and are then forced to operate on the slimmest of margins. Your business needs increased margins to expand and service clients properly, and raising your prices is the best way to do it. The decision about whether to raise your prices is a difficult one, but trying to continually match or beat competitors on price alone is unsustainable. It’s easy to think that if you raise prices you’ll lose clients, but this is rarely the case. If you think about what steps your clients would need to take to move to one of your competitors, based solely on a price increase, it’s probably not worth their effort and your business may be at less risk than you think.
The first thing a business should do before increasing their prices is to understand their points of difference, and for which of their clients that delivers the greatest value. By targeting those clients that appreciate the value you provide it’s easier to increase your prices. Once you’ve worked out who they are, raising prices involves careful timing and knowing how it will affect their price sensitivity and perception of the value you offer. Choose a time when you’ll encounter the least resistance. Your business’s seasonality, growth stage and sales cycle will help you decide. Some retailers raise prices seasonally, for example, just before Christmas busy shoppers pay less attention to price. A new business might be reluctant to raise prices until they’re more established, whereas a computer store suppling businesses might increase prices to coincide with the latest-model technology release. Sometimes businesses announce major price hikes substantially above their previous rates. The idea is that a one off price rise will get the pain over with quickly. This may also happen when they’ve experienced a major increase in the price of a key cost component or have been unexpectedly overwhelmed by sales and need to reduce demand to a manageable level. However, most price increases are done gradually so customers become used to higher prices over time. A series of smaller rises may not even be noticed by some. Businesses with more than one product or service offering might raise prices on some while leaving others unchanged. Some customers are sensitive to the slightest price increase for a certain item while ignoring others.
Price is supported by the value the client perceives in your product or service, and careful attention needs to be paid to what happens when you move pricing and value points. You can increase your pricing and leave the value the same, or you can decrease the value and leave the pricing the same. You can also change both value and pricing. Any of these change combinations can be made to move demand and increase sales without affecting what it actually costs you to provide your service, but you need to know how these changes will be perceived by your clients. Branding is also a good way to increase your prices. People will pay more for a branded product because of the recognition and trust factor than they will for a no-name product.
Having different product levels is also a way of avoiding the price debate with clients. If you have a Silver, Gold and Platinum service, for example, people will compare the prices and value at each level. The price conscious will choose Silver instead of Gold, or they may convince themselves that they really prefer the value of Gold. Presenting the Platinum service with the Silver option may help create a sense of value for some, who will view the less expensive options as a bargain in comparison. Price increases are totally acceptable and necessary as long as they are well thought through and not seen as simply a way to increase profits. Because they are an inevitable part of business, you can’t avoid dealing with them. Instead, you should seek to use them strategically to increase sales.