Prices aren’t going to stay the same forever. Costs go up, labour rates go up, in fact, everything goes up over time with inflation. New businesses may have struggled with finding the right price point initially, found that they made an error, and need to increase prices in order to be profitable. How can prices be raised without customers getting irate? Tim Horton’s recently increased the price of breakfast sandwiches by 20 cents and it made the news! It’s probably going to be less newsworthy if a local business raises their prices, but if it’s not done strategically, at best there might be a few complaints, and at worst, lost customers.
TIP: Raising prices can not only frustrate your customers, but can also be quite a bit of work, updating your POS systems, website and other tools you use. It’s not something you want to have to repeat a year down the road. This will make your customers feel uncertain of your current pricing – will you raise them again and again? If you make price increases a very rare, but well communicated event, the damage to your reputation and customer base should be minimal.
TIP: Don’t raise prices just because. If there’s no solid reason, it won’t go down well with customers. There are a few legitimate times when raising prices is acceptable:
- Costs are going up, e.g. operating costs, supplies, labour etc. When this happens prices have to be raised, there’s no other way around it if you want to continue being profitable.
- Current prices don’t appropriately reflect the brand positioning. If the Unique Selling Proposition is top quality, luxury products, then prices must reflect that (as long as the product/service actually IS top quality and luxury. You can’t charge high prices if the quality doesn’t reflect that).
- Customers will pay for something that is proven. If you have a multitude of positive reviews, the phone is ringing off the hook, and business is being turned away, you clearly have a proven product or service. Don’t be afraid to charge what it is worth.
Here are a few ways to increase prices while mitigating damage to your hard-built business.
- Raise prices at the right time. People like your product or service, it’s popular, and you’re confident in the value the business provides. If there seems to be quite high demand, now would be the right time to increase the cost slightly. With any price raise, the focus should be on the value – this is a necessary move for you to be able to continue providing your customers with the same high quality they have come to expect.
- Keep the price the same, but reduce the size (which has the same effect as raising prices). This can work for many businesses, but especially food and beverage providers. Be careful with this tactic though as customers might notice and not be happy! Avoid this by changing the product entirely – e.g. a 5oz steak at $20 now becomes a 6oz steak for $27. The price is raised but so is the size of the steak, just less proportionately. This gives you something to tell people who ask why the price has increased – “Customers were asking for a larger steak, so we accomodated.”
- If possible offer a smaller package for the same as the old pricing. For example, a landscaping company might have originally charged $500 for a maintenance package, which they must now increase to $600. They could, however, offer a reduced size package (e.g. not including rose bush trimming) for $500 to still work within lower budgets, and to ease the discomfort of raising all prices
- Create a minimum number to buy to get a lower price. E.g. the price of an individual item is raised by 10%, but if 10 are purchased, it works out to be only a 5% increase. Bulk selling at a lower margin!
- Bundle products to create more value. For example, a top selling book has increased by $3, so throw in a free bookmark/slower selling product/higher margin product.
- Add additional discounts on further purchases. Yes, you’ve increased the cost of a bunch of roses, but if you add an offer that when you buy a dozen roses, you get 20% off a second bunch of your choice of flowers, it doesn’t seem such a big deal.
- Target a different customer base. For example, if meat prices have increased but you don’t want to sacrifice quality, target a new demographic of customers, such as couples for date night – people who will be more willing to pay the higher prices.
- For businesses with a loyal customer base, a price increase should be communicated several months in advance to give people plenty of warning. By being told in advance and having time to adjust, customers are less likely to feel irritated at the increase.
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