The Art of Raising Prices
Netflix has made news recently by announcing plans to raise the price of its monthly subscription from $8 to $9. Considering the amount of content provided in a Netflix subscription, you wouldn’t think this is a big deal (especially since the difference is just $12 per year).
But that didn’t stop people from complaining about the price increase online and elsewhere. Which leaves us asking, if Netflix can’t raise prices without blowback:
What does this mean for small business?
Unfortunately rising costs and interest rates are causing many small business owners to face the choice of cutting profits or raising prices.
If that’s you, here are 5 strategies for increasing prices without causing an uproar.
1. Be honest.
Customers are more willing to pay extra when they know what that increase is going toward. If you’re raising wages? Tell the truth! Customers are employees too, and they will value a company more if they know the company is investing in a better standard of living for their workers. If the reason for the higher costs is higher quality ingredients, let your customers know! They will likely find that worthy of a price increase because it presents higher value for them. Let’s face it: if you raise prices, your customers will notice. So get out ahead of it and communicate, honestly, about the reasons for price increase. They’ll be more likely to accept the change.
2. Raise gradually.
A common ploy is to raise prices only for new customers so that you don’t agitate loyal customers. However, when new customers discover they are paying more, they will be upset. If you do this, remember rule #1 and reward loyal customers, but let them know they will soon be paying the new customer price as well. Amazon did this when they gave Prime members until June to renew their memberships at the $99 annual rate. But let them knew they would be paying $119 next year, just like new members. Your goal should be to have everyone paying the same price.
3. Consider timing.
Keep your thumb on the pulse of your customers. For instance, if its a slow season, or if you’ve suddenly had a wave of bad reviews. It’s not a great time to increase prices. Wait until things cool down. Regain customer satisfaction and get business booming again before even thinking about raising prices. If you’re not confident that its the right time, try a survey.
4. Use packages to boost prices.
Anytime you buy an appliance or computer from the store, you’re asked if you would like an extended warranty. Consider doing a package like this to raise your profit margins without raising prices on the product themselves. For example, offering a service contract, batteries, or an accessory to accompany the purchase. Small items add up, and will increase your revenues.
Many restaurants are using this tactic now as well. If you notice a “box” meal deal, or an “extra” like avocado or bacon. It’s a great way of keeping your core product the same price, while bringing the total sale higher.
5. Fire products, services or customers that aren’t making money.
We’ve said it before on the Podcast, its ok to fire your customers that are giving you headaches. Similarly, its ok to fire your products that aren’t performing well either. Keep track of which products/services are selling, and which are taking up space on your menu or shelves. Cutting out these low-margin items (unless they are your loss leaders) will make your business more profitable by allowing you to focus on the higher-margin offerings.
Post below your ideas or examples you’ve seen of clever price increases. It’s a delicate art, and we could all use some more helpful tips! - Sam