Prices are one of the complicated parts, especially if the issue is related to raising the price rate.
There are lots of reasons behind why a business requires an increase in their price, but enough though you have the best reason, increasing-price is one of the serious issues.
If people didn’t get the reasons, they might drop using or buying it which affects the sales. And in the worst case, they might end up losing interest in the brand,
Understanding how to keep the situation under control without losing the customers or the sales is important.
Also to know how to do it, here are some important points and tips to understand.
Understanding When Increasing Price Is Needed
When it comes to understanding price strategy is doing the research properly. With this, you will know the exact time when your product or services need a raise in price.
There are basically two main aspects, you are going to need for understanding.
Do Research About Related Prices
The first thing includes researching the price and cost. It includes how much extra cost or overall cost is adding to your main product.
It can be your shipping, production, packaging, etc. So even though one thing gets price increase, it will affect the overall product manufacturing and shipping which means the real selling price.
Considering The Profit Margin & Sales Levels
The second thing needed is staying on top when it comes to your profit margin and specific product sales levels.
A product selling depends on how good a candidate is best for raising the price. Also for increasing the profit on that.
Another one that you can consider is to look out for new products. If you are going to sell a new product and use the lower price so it can get more traction. Once you start getting the orders, you know when it’s time to increase the price.
Tips For Increasing The Price But Keeping Customer Too
In the business when customer retention is the key, increasing the price is a huge step. It can be risky enough to lose customers, and also means you can get a huge drop in sales.
For example, Netflix services in 2019 announced to increase their subscriptions by 13 to 18%. This was the biggest increase that the company ever did after streaming which amounted extra $1 to 2 per month.
With this, the company rose their shares by 6% which meant the prediction of losing customers.
Mindnet Analytics report predicted that the company will end up 23% cancelation in the subscription.
Well, in the end, the announcement caused the loss. Netflix ended up with 123000 subscriptions in the US. This affected their projection growth.
However, the company adjusted its prices numerous times and kept it impressive to their annual net income growth too.
Netflix did splendid work in 2020 especially since the pandemic affected the world.
Considering not to repeat a similar mistake, here are a few tips that you can consider before you do the price change.
1. Do Your Homework About Pricing Strategy
Well, it’s not going to be the first time when you are increasing the price. There might be lots of information you have from your earlier plans and ideas.
You can use this for understanding and to your advantage, it can help in predicting results for this time too.
To understand how the previous one worked, here are few questions that you need to know about :
- How your customers received the price change in the product?
- How does that cost your business and impact the bottom line?
- How your business handled the impact?
- How many subscribers did you lose after the price increase?
- How are your subscribers affected in the long term?
2. Understand The Importance Of Timing
It’s important to understand when you need to change the price. The ideal time is to keep it infrequently.
Also, the price increase will get you fewer numbers in subscribers, you are going to need to keep the spread changes out.
Apart from this, this will need to keep varying schedules to get through all the impact.
When you do it for the first time, there are huge changes in declining numbers in the subscription. However, it’s not hard to miss but you might start seeing the profits over time too.
Understanding the right time also guarantees that you will get subscribers back along with new users.
3. Evaluate Your Numbers First
It’s important to know how your prices are affecting the business. Consider crunching the number first before you increase the price and after that.
Also, it’s important to consider that at first glance, pricing the number for the first time may give you a hike in increasing profit.
But that’s not it, there are lots of other factors that are included in your overall pricing strategy.
The idea of increasing price is profitable if you are getting more price in return for your lost subscribers.
Well according to the Economist shared a report in 2017, their insight about how to keep the increasing price-efficient for the business. They said increasing the product price by 20 % or more leads to declining revenue increases.
4. Communicate The Plans
When you do the changes in your company, it’s important for you to keep your customer on the same page.
Especially if you are considering the increase in pricing, it’s important for your customer to understand the reasons behind it or what else they will get from it.
Considering Netflix and the price changes example along with their announcement they did in January.
They keep sending their emails regarding the price increase. Also, they added how the billing cycle might affect and would begin.
Instead of focusing on the price increase, Netflix shared more about the content and features that they are offering.
With this they kept their audience focus on the positive side instead of the price increasing situation.
5. Keep Improving
When you are considering increasing the price, make sure your product and services have something to offer. Also, focus on completing the purpose that your customer signed up for.
If you are providing what they want and keeping it maintained, they will not likely have an issue with paying more.
However, if you are not improving your products and considering the concerns they might not like to pay the extra for it.
If you are adding new features or upgrading the services, make sure to highlight those to your customers. They also feel that they are receiving something after paying the price.
6. Reward Your Loyal Customers
If you are afraid that you might end up losing your customer once you increase the price, you can start a loyalty program.
You can start with offering them subscriptions and lock them at that price if you can grandfather them when the new customers enter after the price increases.
For example, in 2018 Amazon increased the membership of Prime by 20%. However, they gave their old customers to renew their subscriptions at a lower price, unlike new ones who paid the increased price.
You can also offer them the perks to the long-time customers. You can consider the option of cable and internet providers.
Since they do the price increase from time to time and the customer pays the price.
The providers use this for offering them some kind of upgrades free. Just like Verizon Fios did. They maintained the history of increasing the internet speed for free whenever they increased the price.
7. Add More Options To Offers
Increasing the price is a deal-breaker, no matter what but some customers will drop the idea of using it.
However, you can make the number less by offering more along with the main product. You can help this by offering more to those who refuse to pay the increased price.
Give them reasons why they should stick with your product even after the price is exceeding. Also, it will help you in soothing down the new customers who might be afraid after knowing the price increase.
8. Get Ready For Worst
The most important point here is to remember that the subscription will drop once you increase the price.
No matter what you do the numbers will decrease if you increase the price by 5 or 20%. It’s important to accept that it will happen in the early stage.
Consumer intelligence research partners analyzed Amazon prime subscription. The report said that the decision of increasing the price didn’t affect long-time subscription numbers.
In December 2018, the company had a U.S subscription of around 100 million. The number increased by over 90 million as compared to December 2017.
9. Add Premium Options
Adding the value method so you can add different options in price on your products. You can consider o putting the charge on added features or special colors especially if your business is related to electronics.
With this pricing strategy, you get two advantages.
Well, here you are offering the lowest price which is suitable for those who are looking for it. Also, for those people who want to spend more, you can sell at that price too.
You are offering two different price ranges, so you can earn profit from the same products.
Secondly, you get an anchoring price.
It’s a psychological trick that plays with the mind which is also called anchoring. You are anchoring the expectation of the price on prices and everything is in front of the person who is choosing it.
It’s similar to Popcorn at Movies. You get three options and different prices. When you choose a medium one, consider the price is $8 and the large one is $8.50. if you are choosing a medium, you might think you just need to spend 50 cents for large and it’s not a huge price, and you might prefer it.
The same effect happens when you do this with your products.
10. Offer Multi-Product Bundles
Selling products that go together really well, you can offer product bundles and use them for adding price value for the customers.
For example, if you are selling clothes, you can offer sets or outfits that look together,
You can consider Amazon for this, as they have different categories on their pages for multi bundle product packages.
You can choose the products based on the requirement or needs of the customers. Also, you can do what Amazon offers, creating a section for offering bundles that other customers are purchasing together.
It’s important to understand that your product should be suitable and useful. Don’t just add products even if it makes no sense to purchase
Using the upsell is helpful to make your products more aware, also you can sell your product on a larger scale. You can boost the individual product.
It’s helpful for boosting more products and you can help your customers to get more aware of what else you are selling.
Frequently Asked Questions ( FAQs)
The price rise becomes important when you are getting less margin. Also, it affects the overall quality and profit for your business that need for growth as well as sustainability in the market.
The price rise should be based on absolute necessity. Also, consider all the aftermath and make sure it is worth the risks.
For short or early stages, the business is bound to lose some customers. However, depending on how you communicated and offered your products, this is also helpful in increasing your base in the future. This indicates better quality and improvement to the business.
The best way is to tell them what they will get from it. Communication is key and when you focus on the positive side, there are better chances for positive responses too.