The cost of materials, energy, transport and labour are rising at an alarming rate in 2022. So, the obvious strategy is to raise your prices, right? Not according to many businesses. Why are we so reluctant to pass on our increasing costs to customers?
Yes, raising the price of your products or services can have an impact on customer demand but there are times when it can’t be avoided and there are also non-financial advantages too.
What’s the difference between cost and value?
- The cost of a product or service is the amount you spend to produce it
- The price is what you charge for providing the product or service
- The value is what the customer feels your product or service is worth
Pricing should align with the value of the benefit your product or service brings to the client, so to maximise profitability, you need to know:
- What benefit does your customer gain?
- What criteria your customer uses for buying from you? (Reliability, delivery speed, quality?)
- What value your customer gets from the benefits of using your products or services?
The main reason for increasing prices is due to higher costs. In order to remain profitable, these costs must be passed on, or else your income will decrease. If a company requires a strategic shift of position or a rebrand, this may also require an uplift in prices. Pricing reflects the value of items or services and consumers link price points with a perception of quality, so if you want to market your product as high-end, the price should match.
It’s also important to keep an eye on your competitors as price increases can move in trends within a sector. Higher competition can restrict price rises but with advanced technology and innovative customer service, a company can justify charging more. It is still more profitable to increase the purchase price for existing clients than to spend far more on attracting new ones.
Fear of losing customers is a major concern for business owners but there are ways to raise prices without alienating clients:
- Increase the price for newer customers and freeze prices for existing ones. This rewards loyalty. If you must increase prices for existing customers, consider adding small extras or bundling services to create great value.
- Timing is key so make sure that your customers are satisfied with your offering and remind them about the benefits of being your customer in the lead-up to the price rise.
- Consider the impact of your price increase on your customer, for instance a 10% rise on a cup of coffee is less impactful than a 10% increase on a large piece of equipment.
- Discounts and offers provided at intervals will keep price-conscious customers interested. The deals will be taken up by some but ignored by others, so you don’t lose out.
- Find a new customer base in addition to your existing clients. More affluent customers with bigger budgets will be more accepting of a higher price.
- Make your price rise a regular strategy and let your clients know that there will be a modest or inflationary increase annually. This works best in service-based businesses.
You can’t keep every single customer on board after a price rise but the chances are, they’re suffering increased costs too. Maintain clear communication channels so that customers understand the reasons for your price rise, clients appreciate transparency.
The team at CRM has years of experience helping businesses to grow and understand the value of their products and services. If you need a new perspective or some advice on how to manage your cost increases, call the friendly, approachable CRM team on 01865 379272.
