Price increases suck. We’ve said it. But they are a function of modern society: prices always go up. The UK’s pound is called a pound because it referred to a pound of silver — admittedly a very, very long time ago. The Big Mac Index is The Economist’s light-hearted guide to the cost of the famous McDonald’s product, and it aims to help people compare currencies. But looking back, the raw data behind it provides an overview of the increase in pricing of the product over time.
There are exceptions of course — the price of equivalent physical tech tends to go down as smaller, faster processors come onto the market. But even then, the actual cost of flagship tech models (think about the latest, greatest smartphones) tends to go upward. The original flagship iPhone, for example, started at $499 in 2007. The iPhone 13 Pro Max now costs $1,099. That’s a huge increase, and while it’s not exactly all down to inflation, it can help create inflationary pressures.
The Power of Value
All of these companies have prospered over the years because they are willing to raise prices so that their businesses are sustainable. Some do it through incremental price increases: The Big Mac has gradually increased in price, with current strategies focusing on smaller increases more often.
Apple, of course, simply prices their new product higher, even when it’s essentially the same phone with a slightly different processor. And sometimes with fewer actual features (where’s your headphone jack?).
However, both companies market their value rather than price. That’s because they’re in a competitive marketplace where differentiation is key. Apple differentiates itself as a tech giant where every part of its ecosystem is fully integrated with each other (sound familiar?), while if you try to integrate a Big Mac with anything other than your mouth, it’s going to get messy.
McDonald’s, however, focuses on being tasty(ish), convenient and a treat. It’s a simple way to enjoy family time together or it’s a snack on the go. And that’s the value, regardless of price.
The Power of Pricing
So where does pricing actually matter? It’s only in the event you’re racing to the bottom, trying to outcompete other solutions based on cost alone. And to us, that’s a losing battle.
There will always be cheaper solutions. But we want to be the best solution for your customer, one that allows them to gain ROI rather than merely working “good enough” for their purposes (and cheaper solutions simply aren’t that great).
So how do you increase prices? Communication is key: When you plan a price increase, plan it well in advance so that you can provide at least three months of notice, if not more. This price increase should be done at a time that’s convenient or easy to remember:
- January 1
- July 1
- Beginning of the financial year (if different)
- After a year of services
Now that you’ve planned on increasing your prices, you need to focus on how you’re going to deliver that information.
The next step is to inform staff. All staff members should know (especially sales staff and other customer-facing staff) when the price increase is due before the customers do. This helps provide you with clarity of vision. Ensure you embargo the price change until a specific date.
Now, you’re ready to inform customers. First, focus on the positives. In your marketing message, typically an email, you’ll talk about the last time you raised prices. You might begin with something like this:
Company has long been a substantial player in the communications vertical, and we’re proud of our track record. To help support you through these challenging business conditions, we’ve kept our pricing the same for the past three years.
This reminds customers that you’re thinking of their needs. Unfortunately, we cannot ignore the impact of inflation and increasing prices from our vendors. The focus here is to emphasize you’re increasing prices because you have to, not because you want to.
To ensure we can maintain the same quality of service and deliver the results you need to communicate with your customers, we’re implementing a price increase from January 2023.
Again, this focuses on the positives: you’re thinking of them and their business needs. It’s a damage minimization tactic. You know that some customers won’t be happy with any price increase, but by making it about them rather than you, you can help reduce the inevitable knee-jerk reaction. At this point, you might add a list of how prices are increasing.
Our customers trust us to provide great products perfectly tailored to their needs, which is why we’ve taken this step reluctantly. This last sentence emphasizes the value you offer.
You then sign off using your standard boilerplate. Don’t forget to send a similar email a month before the price increase to those affected. This can be similar but should not be identical.
Are Price Increases Well-Received?
It may be surprising to some, but most price increases are treated with a sense that they were inevitable. People are well-conditioned to expect price increases because it’s a fact of life. What people react badly to are perceptions of price gouging or exceptionally large or sudden increases.
So if you have a larger price increase, it may be wise to follow in the steps of McDonald’s, creating a series of smaller steps rather than one large one. Alternatively, you might wish to rename your packages and move customers from one to another, if that’s an option, with different packages costing different prices.
Finally, make sure you have a price increase clause in your contracts. This could be index-linked, or it could be linked to the actual cost of supplies. Your legal counsel will be able to provide advice on what phrasing and type of price increase clause are most appropriate. You may find that automatic price increases are the way to go.
Ultimately, price increases don’t have to be painful. They merely need to be well-communicated and justified.
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