Whether you're the one making profits or the one spending the cash, price increases affect us all.
Right now, price increases are a commonality in pretty much every area of life.
We've all seen the supermarket giants collectively adding the pennies onto our grocery favourites. We've all felt motor insurance accelerate to an extra 43% (The Guardian, 2023). All businesses must catch up at some point. Because whichever side of the coin you are, we're all affected in some way or another.
And it's not always a direct response to inflation.
You may up your prices due to...
- Material costs
- Production costs
- Keeping up with industry/competitor prices
- Company growth
- Improvements in the quality of products or services
Either way, all businesses have to jump on the bandwagon and increase their prices at some point down the line.
And that's great for growth. It builds revenue, allows scope for investment, and can help expand your team. There's only one group of people who won't be so happy about your price hikes...your customers.
Unless you're selling rice to billionaires, telling your customers about a price increase can be a bit of an awkward one.
So how you can effectively communicate a price increase and keep everyone happy?
- Be transparent
- Give plenty of notice
- Offer alternatives
- Highlight the value of your products
- Respond to questions and concerns
- Make it personal
- Monitor your feedback
Predominantly, smooth price transitions are all about clear communication and transparency. When it comes to a price increase, honesty is your best policy. Don't tiptoe around it. Your customers might not like paying more money, but they'll appreciate the transparency.
Clearly explain the reasons behind the price increase. Whether it's due to rising production costs, inflation, or market trends, your customers deserve to know why they will be paying more for your products or services.
Give plenty of notice
Provide your customers with ample time before implementing the price increase. This gives them the opportunity to digest, adjust their budgets and make financial decisions based on the increase. Of course, the timeframe depends on your industry - but giving at least two months minimum is probably a good place to start.
Emphasize the value your customers will continue to receive despite the price increase. Show them how your products or services have improved. How can your customers gain any additional benefits from the quality of your product? Reinforce that the price increase reflects the quality, service, and value they can expect from your business.
If possible, provide your customers with alternative options to mitigate the impact of the price increase. Think of alternative pricing plans, discounts for long-term commitments, or bundled packages. Giving customers choices provides some breathing space, and it means they're more likely to retain their loyalty.
We only have to look to the big brands like Netflix and Spotify to see how prices can be negated. Give customers another option so that they can continue paying a lower fee for a similar product.
Let's look at Exhibit A: Spotify.
The Swedish music-streaming giant recently increased their monthly Premium subscription to £10.99, adding on an extra pound per month. To neutralise the price increase, Spotify introduced more expensive monthly plans for multiple accounts from the same household. This reduced the individual price if the cost was split between account holders.
So effectively, Spotify have added just a small nudge in price. Subscribers don't particularly want to pay extra, but paying an extra pound per month is likely not enough to cancel all the ad-free music they already enjoy.
Obviously, it's not much on an individual level. But as Spotify's global subscriber count is expected to reach 229 million by the end of this year, that's a pretty hefty amount of cash added to their company wallet.
Respond to questions and concerns
Anticipate that some customers might have questions or concerns about the price increase. Be prepared to address these promptly and courteously.
Providing clear explanations and empathetic responses can help maintain customer satisfaction. Generate an FAQ page, and answer everything honestly and transparently.
Make it personal
Individualise the communication and tailor it for your individual customers. The message will feel far more genuine if you've directed the communication to them specifically. Use AI tools to send emails to your customers - and tailor the message to suit the specific product or service they are using.
Remember, there's a breathing period after a price hike. Things might go quiet for a short period. Keep a close eye on the conversion rates.
Track customer responses after the price increase. Listen to their feedback (both positive and negative,) and make necessary adjustments if needed. Recognising your customer feedback demonstrates that you value their opinions and are committed to providing excellent customer service.
In all honesty, it's about honesty
Ultimately, it's not about the price increase itself - it's about how you go about it. Prioritise clarity, and continue delivering tailored service to your customers or clients.
Smoothening out this process really highlights the importance of honest communication in business. Do it right, and the growth will speak for itself.