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One of the most difficult things for a company to pull off successfully is a price increase. And for good reason: most people don't like paying more for something they're currently purchasing for less.

The difficulty you might face in raising your prices and retaining satisfied customers, however, is not justification for not raising prices. Sometimes it's necessary, and sometimes it's more than deserved.

Raising prices and surviving to tell about it requires tact. Pricing may largely be a function of supply and demand, but purchasing decisions are often based on subjective factors that a price increase can negatively affect.

Here are five suggestions for raising prices without forcing your customers to stampede to the exit.

Add something new to the mix

Even if you're already providing a level of perceived value most of your customers would be willing to pay more for, sometimes adding something to your offering will help blunt any negative reaction to the price increase.

Change your model; don't just raise prices

In many cases, a price increase becomes necessary to address customer segments that are unprofitable, or that are disproportionally impacting (in a negative fashion) other customer segments that you serve. In these instances, it may be worthwhile to change your pricing model. A good example of this can be seen in the U.S. mobile market, where carriers are increasingly recognizing that it's better to charge data hogs more so that they can provide lower prices for the vast majority of their customers.

Have a justification

No matter what is causing you to raise your prices, it should go without saying that you need to have that legitimate rationale in place before you implement a change. If you have any question about whether you have a strong enough rationale for raising prices, you should go back to the drawing board.

Explain the increase

In most industries, some amount of pricing transparency is desirable or even necessary. If you have to raise your price because the cost of labor has significantly increased, for instance, it's probably worth explaining that to your customers and making the case that passing some of the increased costs along are necessary to keep the company they trust operating in a healthy, sustainable fashion. While there are always likely to be a few customers who won't like your justification, most people are reasonable and know a legitimate rationale for a price increase when they see one.

Provide ample warning

Don't catch your customers off guard. They deserve to know that a price increase is coming and they also deserve time to plan for it. Obviously, the lead time that's appropriate will vary by industry, but in most cases, anything measured in days and not weeks or months is too short. After all, your customers may need to reallocate resources, and even if they don't, most will appreciate the courtesy.

Photo credit: greggoconnell via Flickr.

Patricio Robles

Published 27 September, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2392 more posts from this author

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Darlene Hull

Great post, Patricio!  You have some good practical tips here that any business can use.  Raising prices is always a tricky business, but you've given some clear, useful guidelines here.  Thanks.  I'll be sharing this.

almost 6 years ago

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Patricia Lane

One suggestion to add to this good list of recommendations. Avoid the typical "January 1" or mid-term timing like the plague to maximize your chances of having a meaningful dialog with clients.

As individuals and professionals, we're all hit with rate increases at those times of year and are not in our best frame of mind to listen to even our most valued service providers!

almost 6 years ago

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Starlight backdrop

Hmm mixing the postive in with the bad! Right I think that's the most important point and the point that seems to be emphased throughout the other points we need to consider increasing my own prices but we feel bad about doing so and it shouldn't be the case especially when we charge less than the competition but I will speak to te other director Interesting post!

almost 6 years ago

John Courtney

John Courtney, CEO and Executive Chairman at Pay on Results SEO, Content Marketing, Social Media, Digital PR, PPC & CRO from Strategy Digital

Changing the model can work, or just pay on results?!

almost 6 years ago

Brian Anderson

Brian Anderson, Marketer at Sporting Index

I'd add that if you are a membership business, you may toy with the idea of only increasing your prices for new members. This would lock-in your existing members (less likely to leave then join up again) and allow you to add a bit of that 'last minute rush' feeling before the prices go up for new members.

almost 6 years ago

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Usama

Nice tips for raising prices. It looks like a loose-loose situation without them. Thanks.

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Brian,

That's not a bad idea in some cases, however I would note that your existing members are often the ones most likely to buy into the notion that your service is worth more than they've been paying for it. In other words, they can establish an ROI and/or perceived value and determine that they're still getting more than what they put in, even if the dollar cost increases.

Having a two-tiered system under which old members pay a different rate than new members can even send the wrong message, so I'd encourage businesses to think about other ways they can reward loyalty.

almost 6 years ago

Brian Anderson

Brian Anderson, Marketer at Sporting Index

Hi Patricio, Yes, I agree with your comments about ROI being stronger from an existing customer-base in many cases. Thinking with my consumer hat on for a second, the tactic I mentioned has had an effect on me in the past (SEOMoz have used this tactic with their pro membership rates which absolutely peaked my interest levels). Personally, I don't recall feeling any negative effects - I had more of a "Damn, I wish I'd been earlier to this party!" type feeling. But maybe that's just me... Can you please elaborate on how you believe it might send the wrong message? You've got me thinking now. Good article by the way, and thanks for taking the time to respond to my comment. Brian. P.S. How the hell do you get line breaks to work.....!!?? :-)

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Brian,

In some cases raising prices for new members only can be problematic because it makes your margin a little bit too transparent.

I'm not suggesting that pricing should be opaque, and your customers are reasonably going to expect that you're earning a profit. But if I know, for instance, that you're charging long-time members $50/month, I might think twice about paying $75/month as a new member because I know that you're willing to accept $50/month for your service and can assume that you're already profitable at that rate. Thus some might perceive the $25/month difference as opportunistic profiteering.

Obviously, there are no hard and fast rules here, but personally I'm a firm believer in the notion that if you're not confident that you can sell your existing customers on a price increase, you might want to ask yourself why you think it will be any easier to sell a more expensive product or service to prospective customers.

almost 6 years ago

Brian Anderson

Brian Anderson, Marketer at Sporting Index

Yes, Patricio. I now see what you mean. Good points, well made.

almost 6 years ago

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