When retailers increase their prices, they run the risk of losing customers. But it doesn't have to be that way.

Not too long ago, I wrote an article explaining that having the right price doesn’t necessarily mean having the lowest price. I stand by it, and now I want to take it a step further. Sometimes, the right price doesn’t have to be low at all.

That’s right. Instead of sacrificing your margins, you should consider expanding them even further. Retailers don’t need an Amazon-level profit margin to succeed. As a matter of fact, I would encourage all retailers to avoid margins that thin. 

Of course for every action there is a counteraction. It can be worrisome to raise your prices because you don’t want to turn your customers away from your brand.

Luckily, there are ways to get the best of both worlds. The following advice will help you justify price increases to keep your customers from abandoning carts.

Add value

When you increase the prices of products, you need to make up for it in some way. How would you feel if your favourite store increased the prices of your favourite products and didn’t add value in some way?

Of course, you don’t need to make any drastic changes. But, you need to make sure some bases are covered. One of the best ways to justify a premium is through your customer service.

About 81% of shoppers would pay more for better customer services, so you know it’s a big deal. Introduce live chat to aid them with any purchase question they might have. It’s helpful for 90% of customers, and can actually cut back on business expenses.

Inexpensive or even free shipping is another way to increase your prices. By implementing free shipping, you make the customer feel like they are only paying for the product instead of the services that come with it. And a price increase should cushion the shipping costs you’d have to face.

Create bundles

You know what’s awesome? Getting more stuff at a better price.

When you bundle similar or complementary products together, you give the customer a better deal than before: two products that are only slightly higher than the price of one of them. 

Thanks to the ambiguity, customers are not aware of the actual costs of the products, so you can use that to your advantage. By increasing the prices of both slightly to make a new price, you can give the customer a deal. 

A study done by Carnegie Mellon University shows that consumers preferred product bundling when coupled with an option to buy each piece individually. So if you’re bundling, provide the single products as options as well. 

The individual products can act as an anchor, meaning they will make the bundle appear far more attractive when the prices are compared to the bundle’s prices. Just make sure the bundle is less expensive than the individual items added together.

Capitalise on demand

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Of course, you can always incorporate a dynamic pricing strategy and raise prices with an increase in demand.

If you notice that you’re selling a ton of a certain product, increase the price. Products in high demand tend to be less price elastic, meaning that changes in price won’t affect the quantity demanded. 

If economics has taught us anything, it’s that retailers can afford a price increase that coincides with an increase in demand. Test your price increases with your most popular items, it will give you the best idea as to how your customers will react.

Doing this will make sure you capitalise on every penny possible. Increasing your price to meet demand will make slim margins a thing of the past, and help you boast impressive numbers at the end of the quarter. 

So as you can see, justifying price increases doesn’t have to be hard. Of course, there are other factors that go into it. Retailers face different costs, and hold unique relationships with their customers. 

Maybe the best way to afford price increases is establishing valuable brand equity first. If your brand is successful, many customers will not want to leave your store due to a slight price increase.

Boosting your profit margins doesn’t have to result in losing customers. Retailers should experiment with different services and bundles before sticking with one to justify price increases.

However, there’s no need to sell yourself short. If your brand is valuable, and your customers are loyal, slight price increases will present you with no opportunity costs.

Ari Shpanya

Published 17 April, 2015 by Ari Shpanya

Ari is the co-founder of HomeShare and Zent , Graduate of the GSB Stanford Ignite program, and a contributor to Econsultancy.

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Comments (4)


Anthony Millet, Former COO at ActivInstinct

In a world where you sell highly commoditised branded items (other people's brands) and your main competitor is Amazon (they are selling the same SKU be it through them or another 3rd party seller), and the customer knows what they want/need (i.e. places no value on your description/guidance) surely it really only does come down to price (and of course Customer Experience around delivery and returns - which Amazon excels in anyway)?

over 3 years ago

Ari Shpanya

Ari Shpanya, co-founder at HomeShare.com

Hi Anthony, thanks for your comment. I think there are ways to compete beyond price for online retail, especially when it comes to the shopping experience. One way smaller, independent retailers can win over Amazon is through loyalty programs. As you probably know, building loyalty is one of the most important things a retailer can do. By rewarding returning customers with discounts, limited time offers, and more, it can influence a customer to return to the retailer's site, not Amazon's. Roughly 54% of customers would consider increasing the amount of business they do with a company for loyalty rewards, so using them could sway a customer away from Amazon in the first place. Plus, the personalization that comes with a loyalty program can give retailers a competitive advantage over Amazon.

over 3 years ago


Anthony Millet, Former COO at ActivInstinct

Hi Arie, I agree with you on loyalty programmes, and building a sense of community also amongst customers. The main gripe here (especially with commoditised branded items) is that due to the excellent job Amazon has done, you need to compete on price for new customers, and then further reward the loyal ones with more discount. It all points towards margin erosion, unless you can come up with super smart ways of getting your customer to pay more for an item (agree through personalisation, convenience, service, availbility) etc - but you need to be better than Amazon here!

over 3 years ago


Peter Cunningham, Product & Marketing at Buyapowa

Bundling is a common tactic - as you write, it becomes increasingly difficult to establish a reference price. Think of a bundle of a printer, ink cartridges, paper, photo paper. You just have to include something difficult to compare like a different size paper bundle or cartridges that aren't available on the market (different size) and you lose the ability to get an exact price reference. When its an impulse buy, the effort to calculate may be too much and you just buy based on Kahneman's Type 1 thinking (reptilian brain if you read Nudge).

Others include doing everything to make it difficult to compare competing offers - like the mobile phone companies who give you a laundry list of included services like texts, friends and family, different peak and off peak pricing etc. that make it almost incomprehensible.

Another tactic (my MBA marketing professor told me this own) is to make a product that is unique, like the 'lowest price guarantees' that some retailers use. But they have a product, 1% different to anything else on the market, that is only sold via their store, so it is always the lowest price for that particular version.

over 3 years ago

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