Supply chain issues, rising energy prices, the conflict in Europe and hiring challenges are all creating uncertainty in the markets. This often results in currencies becoming devalued and prices rising. This affects everything from sports cars to bread - as well as the cost of your business’ goods or services.
It’s a fact of life that businesses will need to adjust prices in line with the market. This is something you should be doing regularly anyway. Increasing prices little and often is much better than putting it off and being forced to make large increases all at once.
However, even with this policy in place, cost inflation means that you’ll need to raise prices in order to maintain margin. However, you should accept this fact - and ensure that your customers do too, without it becoming a major challenge.
There’s a very good reason why ‘price’ is one of the ‘4 Ps of marketing’. Marketing can help you understand your customers’ attitudes, behaviours and position in the buying cycle. It can help you to fix the right price accordingly, frame the value of your product or service, and communicate the changes to your customers.
Essentially, marketing can help you to determine and communicate price increases without annoying your customers. Here’s how.
Is now the right time?
Some may question the wisdom of raising prices during uncertain times. They may fear that it will result in losing customers altogether, believing that some revenue is better than no revenue.
It’s a common concern, often voiced by sales. The reality, however, is that the longer you wait, the greater the damage you’ll do to your own business’ finances.
By far the biggest issue you’ll face when raising your prices is having the initial confidence to do so. Don’t forget, though: everyone else - including your customers - is in the same boat.
It goes without saying that you should still take into account your brand, your competitors and the value you deliver. However, inertia can often have a far worse long-term impact than being decisive and doing what needs to be done.
Know your market and your customer
Before you jump straight in and hike your prices, you need a discussion: one that evaluates how your customers are currently feeling, and the impact that any price increase will have on them.
Consider your key market segments. What is the real impact on them of the current market conditions? What sort of price increases are they likely to accept, and where is the ‘red line’ which could mean you lose them as a customer? What are the acceptable outcomes from both parties?
Customer research can help you to establish the answers. Encourage your sales team to call some of your trusted and valued customers, to enable you to see things from their perspective more clearly.
Set prices that work for you and them
Your challenge is to find the middle ground between what your customers can afford (and are willing to pay), and the margins your business needs to make - both today, and in the future.
Most people will forgive a price increase, as long as they still deem your product or service to be providing them with true value. At a time when the cost of living, utilities, fuel and more are gaining in price, your customers will be used to prices rising: everyone is in the same boat.
However, hitting customers with two, three, four price increases in the space of a year will likely make them question whether the business relationship is worth continuing. When calculating your price increases, think, where possible, about the full 12 months ahead to establish what you need to do to still be profitable in a year’s time.
Clarity and honesty is always the best policy
Clients aren’t just paying for your product. They’re paying for your customer service, too.
Mishandle the service element of a price increase - the way it’s communicated to and discussed with them - and they’ll start to question the value of both your customer service and your product.
At times like this, honesty is the best policy. Be upfront about how much you’re raising your prices by and exactly why it’s happening. Without explaining, your customers may suspect that you’re profiteering. This is particularly true in sectors such as energy, where businesses have a reputation for raising prices despite posting huge profits. Octopus Energy, however, published this announcement before raising their prices, demonstrating that communication can make a big difference.
Demonstrate too that you’ve taken their situation into account, and know the pressures that they’re under.
If you’re expecting some tough conversations with customers who are unhappy about the price hikes, give yourself some leeway when determining what those revised prices will be. By giving your sales or customer service team some room to negotiate on price, you could help your customers to feel like they’re getting a better deal than they initially expected, without you needing to operate at a loss just to keep them on board.
A fact of life
Whether times are good or bad, price increases are a fact of life: in any industry, in any business, of any size. During times of uncertainty, however, defining and communicating a price increase feels a lot more fraught, with far more riding on the outcome of the customer’s decision.
Remember, however: the pressures that are currently forcing businesses to review prices are external - everyone is affected. Just as your costs are going up, so are your customers’: they will understand.
If you have built a strong brand that delivers genuine value to its clients - a brand that has become essential - then price increases will be much easier to stomach. However, these still need to be defined and delivered in the right way.
A situation like this is a prime example of where multiple teams can come together to ensure a successful outcome. Your sales and customer service teams will be instrumental in communicating the price increases to customers and being the first point of contact for them to discuss these changes.
However, it’s also crucial that you involve your marketing team, who will help you to understand your market and your customers, and how best to frame the changes.